There’s no ‘one-size-fits-all’ allocation that works for all portfolios, especially when it comes to family offices. Portfolios will vary widely, depending on a number of factors, such as the family’s investment needs, appetite for risk and investment horizon. But typically, portfolios will diversify across a range of assets – some of which take care of current needs and others, such as private equity investments, provide the potential for building the portfolio in the longer term. 

Private equity markets are an important part of family office asset allocation, and increasingly so. These assets are well-suited for many family offices, who have substantial capital resources and often a longer-term investment horizon. They also have the resources needed to conduct due diligence on potential investments and access to opportunities through their networks of contacts. 

We’ve seen a steady increase in allocations to private markets from family offices in recent years. According to the latest UBS Global Family Office Report, 80% of family offices report they already allocate to private equity markets and even more are turning to the asset class in the current climate. High inflation and rising interest rates are prompting many to reduce allocations to fixed income in favour of alternative asset classes, with private equity markets leading the way. According to the report, 51% of family offices plan to increase their allocation in the next five years. 

But private markets have traditionally been viewed as challenging to navigate. Access to deal flow can be difficult, liquidity is a challenge, investments can be subject to complex regulatory requirements and there is a heavy administrative burden, especially when transacting across different borders. 

But thanks to technology, solutions now exist that address these challenges and create a much easier route into private markets for family offices: 

Deal flow: Platforms and technologies exist that connect investors with potential opportunities. For example, blockchain technology is being used to create decentralised platforms that allow family offices to invest in private markets using digital tokens. This allows family offices to filter investment opportunities based on their criteria and preferences more efficiently than ever before. 

Liquidity: Technology is also being used to create liquidity for private equity market investments. A lack of liquidity has traditionally been a big barrier to investing, as investors have lacked the flexibility they need to exit positions when they need to. But innovative new technologies have opened up channels of liquidity and created an active secondary market, full of opportunities for buyers and sellers. Blockchain technology allows family offices to access liquidity faster, more efficiently, more securely and at a lower cost. 

The administrative burden: Digital documentation and automated workflows have streamlined the document review and approval process. Specifically, the use of smart contracts, which are self-executing contracts with the terms written directly into the cost, reduce the need for any admin-heavy manual processing. Even many of the cumbersome post-trade processes, such as paying stamp duty, can be automated via smart contracts.   

Transparency: Digitising private equity markets doesn’t just help with the administrative burden. It also allows family offices to gain real-time access to investment data, helping them make more informed investment decisions. 

Private equity is a useful asset for family offices looking to diversify their portfolios and generate attractive long-term returns. Technology has certainly helped to democratise this asset class, allowing family offices to access opportunities that were previously the domain of larger institutional investors, and making the process of investing easier, more efficient and smarter.