InvestmentFamily office funds step in amidst retreating VCs

Family office funds step in amidst retreating VCs

Number of single-family offices soar by over 40% since 2008 with combined investable assets of up to several trillion dollars

Gaurav Singh, founder of global investment bank, JPIN, explains the significance of family office investment for the future of innovation

The effects of a global pandemic, rising inflation, trade tensions and a looming economic recession have created a unique market for investors looking for profitable returns. Despite this challenging landscape, the largest bilateral investment bank between the UK and India, JPIN, has unveiled new data showing which sectors Britain’s investor community are looking to back whilst highlighting a trend of family offices coming to the fore as institutional investors take a step back.

Catalysed by a macroeconomic slump, the status-quo of SME lending is facing its own implications of “stagflation” with worldwide VC confidence and funding taking a subsequent hit. As a result, a widening funding gap is emerging at speed, blighting the prospects of the private sector’s scale-up trajectory. Despite the constraints evolving around institutional funding, family office popularity is at an all-time high. The number of single-family offices has risen by over 40% since 2008, and has combined investable assets of up to several trillion dollars, according to industry experts. The shift to the deep-pocketed investors from private wealth vehicles is set to prevent VC confidence from declining even further – providing an alternative route to boost investment for the future of innovation.

In comparison, institutional investors such as banks, labour unions, insurance companies and pensions, require a longer and more protected due diligence process compared to family offices, which offer greater thresholds for longer investment hold times. Prominent VC firms have advised their portfolio companies to start cutting costs and look for ways to cushion their cash position following a brief setback in the last few months. Family offices could help aid the current market conditions by stepping in with a potentially attractive pool of capital for funds and private deals.

Research from the UBS Global Family Office reveals that high inflation, central bank liquidity and rising interest rates have compelled family offices to reconsider their investment options. They are reducing fixed income allocations and increasing investments in private equity – with 42% of family offices worldwide looking to increase direct private equity allocations. This is due to the broad opportunity and potential to produce higher returns.

Key stats:

  • 43% of investors want to invest in green/sustainability companies
  • 34% want to invest in biotech/medtech
  • 26% want to invest in fintech
  • 16% want to invest in startups
The data reveals that green and sustainable companies are the most popular in terms of investor sentiment – especially given the significance of the global race to net zero. Biotech and fintech follow closely behind as investors are looking to search for innovation that can contribute to future-proofing countries and their economies. The figures indicate that these sectors could still continue to enjoy support despite worldwide economic pressures, and another Bank of England interest rate rise.
The surge in popularity of family offices comes as no surprise given that their market revenue is expected to grow at a staggering 6.01% compound annual growth rate (CAGR) between 2021-2026. There are several factors contributing to this – not only their efficacy in ultra-high-net-worth wealth management and generational wealth creation, but also due to the fact that they often have less constraints than VC or private equity firms and are able to pivot quickly in relation to an ever-changing landscape.

Gaurav Singh, founder of JPIN, comments:

“It appears family offices could come to the fore to fill investment gaps in the market at a time when valuations are dropping and confidence from some institutional investors is decreasing. This increased activity from a different branch of the investment sphere could provide startups with an injection of much-needed capital which will also help to stimulate the economy during these challenging times.

“Research shows there is a clear focus on private equity investment for family offices – with 42% planning to increase their funding in this area. Within this, technology is the most common sector, given the continuous desire for digital transformation across the world.”

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