Family offices have a tradition of funding causes that are personal to them. In recent years, some have found they can make a greater impact in health care through directly investing in companies and technologies. I’ve had the privilege of speaking with some, and I’ve come away feeling hopeful for our future. Marcus Baram did the same this week, spotlighting several families at the forefront of this trend, whose time and money are leading to advancements in areas like health tech, mental illness, and pediatric and geriatric care.
We also report on how Asian family offices are getting hit hard by their exposure to private equity. The numbers don’t lie. According to a recent Preqin survey, 6% of family office respondents said their private equity exposure will perform worse due to write-downs, slowing growth and higher interest rates. What’s more, this will mark the worst-performing year for private equity since 2008. But all is not lost. Respondents did remain hopeful when it comes to private debt and hedge funds throughout 2023.
With summer in full swing, we’ll be keeping you up to date with community happenings such as conferences, art fairs and social gatherings, so be sure to check out our website and LinkedIn page for those real-time updates.
As always, we appreciate any comments, ideas and insights that would make this newsletter more useful. I look forward to growing this family office community with your help. Please email me at [email protected].
HANDPICKED: How family offices are at the forefront of health care investing
By MARCUS BARAM
Like many family office members who have funded health care, it was personal for Maximilian Winter. The scion of a German family that made its fortune in the automotive industry, Winter came down with Lyme disease about 10 years ago. He says he went to five doctors before getting an actual diagnosis, then launched a venture capital firm out of the family office to invest in ways to help cure himself.
After regaining his health, Winter launched a second fund, Harmonix, which to date has made over 40 investments in health tech and deep tech. Then a year and a half ago, he and his brother started a foundation that focuses on for-profit impact investments and donations to health care and the environment.
Winter’s dual approach reflects a trend in how some family offices invest in health care, marrying nonprofit goals with for-profit ambitions to have greater impact. Those that have launched foundations increasingly seek more control over their investments and charitable donations in health care.
Some of the more prominent family office foundations investing in health care are the California-based Staglin family, who for almost 30 years have funded accelerated research of mental illness, and the Charles H. Hood Foundation, which has supported pediatric research since 1942.
GOOD ON PAPER, NOT IN PRACTICE
John Parker, a great-grandson of Hood’s, launched a venture fund within the foundation about eight years ago because he saw a disconnect — the scientific research the foundation had been funding sometimes ended up published in prestigious journals but not really helping kids.
Springhood Ventures invests in two or three companies per year and currently has a portfolio of 17 companies spanning sectors ranging from digital health and pediatric cancer to medical devices and diagnostics. It does this through a program-related investment tool that “pulls the money from the charitable bucket and not from the foundation’s fiduciary bucket.” They put the principal back as a distribution, and any profits from their investment can go into the endowment.
“Any profits are pure alpha that can help keep growing the fund,” Parker said. “I don’t know why more foundations don’t use it. You’re making a difference but still in the investing area.”
Other family offices concentrate on direct investments in health care. Mark Mitchell, whose family made its fortune in geriatric care, said the Michigan-based Mitchell Family Office takes the health care companies it owns and invests in research and outcome studies. “That’s how we’re doing it, rather than donating through a 501(c)3 and not knowing how the money is being spent,” he said.
“We’re looking at reinventing how autism treatment is delivered — your child is diagnosed with autism, and you have to go figure it out. We’re hiring social workers to go and talk to families and get them into the system.”
'SOLUTIONS ARE OUT THERE'
To be sure, not all health care challenges can be adequately addressed by startups — which often need to show a return to investors, even with the generous support of a family office. “There are certain things like malaria or other afflictions that are a pretty big health hazard, but there’s not a huge market for their treatment or cure,” said Winter, explaining that they don’t fit the business model for investors who expect three times their money.
For example, Chuck Stetson of the New York-based Stetson Family Office is focused on preventive medicine and has partnered with the United Nations Educational, Scientific and Cultural Organization (UNESCO) on global health initiatives and physical education in schools.
“This is where philanthropy can do real good,” Stetson said. “The solutions are out there, but no one is paying any attention to them.”
In the end, it’s all about having the most impact in those areas that matter to you.
“How can we support health care from different angles?” Winter said. “Not everything fits into the venture model, and not everything fits into the pure charity model.
Family offices in Asia gloomy about their private equity portfolios
By MARCUS BARAM
Nearly half of family offices in Asia expect their private equity and venture capital portfolios to perform poorly this year — even worse than during the 2022 downturn, according to a survey by Preqin. But they’re bullish about private debt and hedge funds.
About 46% of family office respondents said their private equity exposure will perform worse, and 48% expect their venture capital exposure to perform worse — due to write-downs, slowing growth and higher interest rates. Overall, with private equity funds declining by 9% on average through the first three quarters of 2022, it has been the worst-performing year for the asset class since 2008.
“Family offices expect a further correction as they view private equity as overvalued, given the gap between public and private equity valuations,” the report said.
Even so, over a third of family offices surveyed expect their private equity portfolios to perform better in the next 12 months. Only 21% of them plan to reduce their exposure to the asset class, compared with 31% who plan to reduce their holdings in venture capital.
They’re most optimistic about private debt, with 64% expecting the asset class to perform better this year. And 57% expect hedge funds to deliver better returns over the next 12 months, with 54% of them seeking to increase their exposure to the class.
LOOSE CHANGE
Ruby and pink diamond set world records at Sotheby’s jewelry auction: The two gemstones made auction history by each selling for over $30 million at the auction house’s Magnificent Jewels auction.
What a way to celebrate Lamborghini’s birthday! The legendary luxury automaker marked its 60th anniversary by premiering the Revuelto, its first V-12 super-sports plug-in hybrid electric vehicle, in front of over 500 guests at a former 2021 Summer Olympics venue in Japan on June 6.
High-end pop-up dining comes to the Hamptons this summer: High-rollers will have a new dining experience this summer when pastaRAMEN brings its pop-up dinner party series to Kissaki in Water Mill.
Help us with a story: We’re working on a story about the intersection of hospitality and wealth management and what insights family offices can glean from top hospitality brands. If you have any comments on the topic, reach out to [email protected].