Private equity outlook raises investment considerations for family offices

While the trend continues toward direct investing, many family offices still have significant wealth allocated through private equity funds, which are facing a new reality: If inflation persists and the economy declines, value creation and exit strategies will become increasingly challenging. 

In RSM US LLP's fall industry outlook for private equity, Kennedy Chinyamutangira, an RSM financial services senior analyst, predicts sponsors may use stalling tactics to help mitigate the looming market shift.

“For private equity funds at or nearing the end of their term and have to sell in this market, giving back some of the unrealized gains built up over the past couple of years will be a tough pill to swallow,” he writes.

Conversely, family offices have the luxury to choose when to deploy capital, allowing for a much longer-term perspective and flexibility in decision-making. This value proposition is why so many high net worth families are considering their options when investing in the private markets.

“We’re hearing from families that they want to be in alternatives but don’t want to pay the fund structure, so they co-invest and direct-invest with opportunities,” says Tony Wood, RSM principal, and national family office leader.

By circumventing reliance on third-party managers, family offices can save on fees. Having more control over their investments provides family offices the flexibility to focus on strengthening the enterprise to gain higher returns.

“Most families are looking for operational excellence around their technology, their people and processes, and the way they invest; they are getting more sophisticated about how they invest,” adds Wood.

For more insight, read RSM’s inflation snapshot for private equity.