Campden Wealth, a family offices membership organisation, is reporting that North American family offices are allocating 3 percent of their portfolios to private debt. This is the first time that Campden Wealth has included private debt in its analysis of family offices’ overall asset allocation.
In the report’s survey of family offices, 34 percent of respondents said they plan to allocate more to private debt/direct lending. They are leaning into that and other private asset classes in order to mitigate the consequences of inflation.
In the just-released annual report, prepared in partnership with the Royal Bank of Canada, Campden Wealth adopted a more granular classification than in years past. And it found that private equity, broadly construed, accounts for 27 percent of the average allocation of a North American family office. Of that share of the portfolio, 9 percent consisted of direct investments, 9 percent of investments in private equity funds, 6 percent of venture capital funds and the remaining 3 percent of private debt funds or direct lending. Last year, Campden Wealth reported that private equity as a whole accounted for 22 percent of the portfolio, although the organisation did not break that figure down further.
A preface by Dominic Samuelson, Campden Wealth’s CEO, says that North American family offices have outperformed their peers in other regions. In 2021, North American family offices delivered a 15 percent average portfolio return, compared with 13 percent for Europe and just 10 percent for Asia-Pacific. Samuelson takes this as evidence of the resilience of family offices even in the face of the economic and epidemiological difficulties of recent years.
Nearly half (47 percent) of the world’s family offices are in North America, defined to include Barbados, Canada, the Cayman Islands, Mexico and the United States. Europe and Asia-Pacific account for 27 and 20 percent of the whole, respectively.
More than two-thirds of the North American family offices (68 percent) described their “general economic outlook” for the period of 2022-23 as either negative or very negative. That is almost identical to the figure for the global survey (69 percent).
The Campden Wealth report indicates that 81 percent of the North American family offices surveyed cited investment risk as the number one threat to family offices. Consequently, many have shifted away from a riskier growth approach to an investment strategy that balances growth with capital preservation. This year, 51 percent of family offices employed a balanced strategy, compared to 47 percent in 2021.
Protection against inflation is an important part of the preservation part of that balance. It has led to more interest in private equity funds (46 percent of respondents say they will allocate more to such funds) as well as direct investments (41 percent say the same) venture capital (35 percent) and real estate (41 percent).
Dr Rebecca Gooch, senior director of research at Campden Wealth, described family offices as “nimble investors with ample cash reserves, diverse portfolios and a long-term outlook”. This, she added, makes them “able to ride economic waves while also capitalising on opportunistic deals”.
Perhaps the final word should be accorded to the anonymous president of a family office in Massachusetts. The report quotes this individual’s view on the precision of figures in these matters. “The Heisenberg uncertainty principle of finance is that the information from private fund investing can be either timely or accurate,” he said. “However, it cannot be both and it’s usually neither.”