EisnerAmper’s Alternative Investment Summit – Inside the Family Office
Alternative investments continue to play an increasingly important role amongst family offices, helping boost portfolio returns while decreasing volatility. However, perspectives regarding which investment strategies present the most attractive opportunities vary.
The family office panel discussion at EisnerAmper’s Alternative Investment Summit focused on the asset classes that family offices are allocating to and where they see the best opportunities to invest.
A major consideration for family office managers is the “sleep at night” factor of the family. What risk/return is the family comfortable with? With many family offices, the primary goal is the preservation of wealth. Second to wealth preservation is the challenge of identifying income-generating assets and how each respective asset – regardless of the asset type – compares to other investments the family has. Identifying a diversified, uncorrelated asset which fits well with an existing portfolio is key. Additionally, what is the asset’s income-generating ability and is the family comfortable with its collateral value?
Although hedge funds have faced increased scrutiny lately due to underperformance and high fees, family offices are still open to allocating to them. The bigger challenge is identifying which managers to allocate to and which managers perform well throughout market cycles.
The panelists also shared some of the factors they evaluate prior to making allocations:
- Scalability of the investment, especially with esoteric strategies. While niche strategies, like pharmaceutical royalties, catastrophe protection and tax liens, have resulted in high returns, scalability is a concern. What is the most efficient allocation and what is the capacity of the strategy?
- Operational intensity. On the surface, returns may seem to be promising. However, what is the infrastructure that is required to continue to manage the asset on an ongoing basis and after layering in the infrastructure cost to return is the net return as attractive?
- Liquidity. Are the liquidity terms aligned with the family’s needs? Some family offices look for liquidity in as short as 12 months to as long as 3 years. On the more illiquid side, private equity was a favorite.
Panelists were able to share some insight into the trends they’re finding in the market – the attractive strategies and industries.
- Israel appears to be a technology ‘hot spot’ for entrepreneurship and the growth of intellectual capital. A quick look at Pitchbook tells us approximately 400 private equity- and venture capital-backed technology companies are headquartered in the country and more than 1500 companies that have already received private investments or have transactions pending.
- Given their low correlation to the equity market, volatility funds were a favorite amongst the panel.
- From a direct lending perspective, panelists favored the real estate market.
EisnerAmper would like to thank the panelists for their time and insights:
- Dean D’Onofrio, BEL45 Advisors, LLC
- Ken Glassman, RWN Management
- Abigail Laufer, Ferguson Family Office
- Laurence Schreiber, Clarity Capital
- Berk Nowak, Brown Advisory (moderator)