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A version of this article first appeared in CNBC's Inside Wealth newsletter with Robert Frank, a weekly guide for the high-net-worth investor and consumer. Sign up to receive future issues, straight to your inbox.
The number of family offices in the world has tripled since 2019, launching a new race among private equity firms, hedge funds and venture capital firms to attract their investments.
According to a new report from Preqin, the number of family offices — the private investment arms of wealthy families — exceeded 4,500 worldwide last year. North America has the largest share of family offices, with 1,682. More than half of the world's family office assets are in North America.
Experts say family offices now manage $6 trillion or more, and their numbers are growing. There are more than 2,600 billionaires in the world, almost all of whom need a family office. The number of people worldwide worth $100 million or more — the typical threshold for a family office — has risen to more than 90,000, according to Wealth-X, an Altrata company. In other words, there is more room to run.
The family office boom has caught the attention of private equity firms and other alternatives managers looking to raise money. Blackstone, KKR, and Carlyle have all expanded their teams, financed events, and built products that specifically meet the needs of family offices.
“The big private equity managers are trying to compete there by conserving resources and time,” said Rachel Dabora, a research analyst at Preqin. “High-net-worth investors and family offices are actually on their radar.”
On the surface, family offices are dream clients for alternatives. For many years, family offices have sought to preserve underlying wealth through traditional stock and bond portfolios. They are now more like institutional investors, seeking higher long-term returns through private equity, venture capital, hedge funds, infrastructure, and real estate. Family offices have the highest allocations to hedge funds of any type of institutional investor, according to Preqin.
The past couple of years have certainly been difficult for private equity, venture capital, and many hedge fund returns.
More than half of the family offices surveyed by Preqin said they were disappointed with venture capital returns, while a third were disappointed with private equity. However, they remain optimistic this year and beyond, with a majority saying private equity and venture capital will perform better over the next 12 months.
Private equity firms are aggressively pursuing the family office market. Blackstone, which has served wealthy individuals for decades through its Private Wealth Solutions business, is ramping up its private capital group, serving family offices, billionaires and the largest and most sophisticated individual investors. That team has doubled to 25 people over the past few years, and will likely continue to grow, according to Craig Russell, global head of Blackstone's private capital group.
“We see this as a significant and growing opportunity for Blackstone,” Russell said.
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