A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.
The number of family offices in the world has tripled since 2019, setting off a new race among private equity firms, hedge funds and venture capital firms to attract their investments.
According to a new report from Preqin, the number of family offices — the private investing arms of wealthy families — topped 4,500 worldwide last year. North America has the largest share of family offices, with 1,682. More than half of all the family office assets in the world are in North America.
Experts say family offices now manage $6 trillion or more, and their ranks are growing. There are more than 2,600 billionaires in the world, almost all of them requiring a family office. And the number of people in the world worth $100 million or more — the typical threshold for a family office — has surged to more than 90,000, according to Wealth-X, an Altrata company. In other words, there is more room to run.
The family office boom has caught the attention of private equity firms and other alternatives managers who are looking to raise funds. Blackstone, KKR and Carlyle have all been expanding their teams, funding events and building products catering specifically to family offices.
“The larger private equity managers are trying to compete there by putting in resources and time,” said Rachel Dabora, research insights analyst at Preqin. “Ultra-high-net-worth investors and family offices are really on their radar.”
On the surface, family offices are dream clients for alternatives. For years, family offices sought basic wealth preservation with traditional stocks-and-bonds portfolios. Now they’re more like institutional investors, seeking higher long-term returns with private equity, venture capital, hedge funds, infrastructure and real estate. Family offices have the highest allocation to hedge funds of any type of institutional investor, according to Preqin.
Granted, the past two years have been tough on private equity, venture capital and many hedge fund returns.
More than half of the family offices that Preqin surveyed said they have been disappointed with their venture capital returns, while a third have been disappointed with private equity. Yet they remain hopeful for this year and beyond, with a majority saying private equity and venture capital will do better over the next 12 months.
Private equity firms are going after the family office market aggressively. Blackstone, which has served wealthy individuals for decades through its Private Wealth Solutions business, is ramping up its Private Capital Group, which serves family offices, billionaires and the largest, most sophisticated individual investors. That team has doubled to 25 people over the past few years and is likely to keep growing, according to Craig Russell, global head of Blackstone’s Private Capital Group.
“We view this as a substantial and growing opportunity for Blackstone,” Russell said.
Sign up to receive future editions of CNBC’s Inside Wealth newsletter with Robert Frank.