Family offices are increasingly adapting holding-company and evergreen-fund structures for investing in private markets, according to a survey from Los Angeles-based Bastiat Partners and Brussels-based Kharis Capital.
“Holding companies structured in an evergreen fund really address one of the key issues of taxpaying investors such as family offices, in that they don’t need to sell every five or six years like a traditional fund would,” Nader Afshar, managing partner at Bastiat Partners, told Crain Currency. “It’s much more tax-efficient and allows them to compound. So having a dividend recap every five or six years, as opposed to an exit, might make more sense for a family office.”
Evergreen funds offer flexibility for investors because there is no required time period for capital to be locked into the fund. Scott Welch, CIO of the multi-family office Certuity, previously referred to evergreen funds as a growing “phenomenon” for investors in private credit.
Among the responses from over 75 global family offices, Bastiat and Kharis Capital’s survey found that 50% of family offices plan to increase their amount of direct investments, meaning they’d invest directly into private companies as opposed to joining a private equity fund. The survey also found that family offices aim to complete three to five investment deals annually.
More than half (52%) of family offices prefer doing direct deals through syndicates, in which other investors take the lead — “reflecting a cautious approach and reliance on the expertise of established sponsors,” according to the report.
The survey also found that 40% of family offices plan to increase allocations to private equity transactions over the next two years. This is more than double their planned allocation increases to other asset classes, such as venture capital (18%), private credit (16%) and real estate (14%). As family offices grow their investment appetite for direct deals and private equity, 20% of surveyed respondents cited “quality deal flow” as a primary concern.
“Family offices continue to hire the talent that's traditionally on the buy side, the transaction side, in order to gravitate more toward direct deals and private equity deals,” said Afshar. "So the takeaway for me was really that they want to increase deal sourcing and find other like-minded investors.”