Family offices make up over one-third of Australian private market investors
Asia Pacific family offices have become a significant force in Australia’s surging private capital markets, growing from 7% of total investors in 2019 to 36% in 2023 as they are navigate risks and opportunities in an uncertain global economy, a recent report noted.
Australia's asset management sector has benefitted from family office participation, fuelled by robust fundraising and impressive fund performances, according to Preqin’s 2024 Australian Private Capital Market Yearbook.
“Australia-focused assets under management growth in the past 18 months, from December 2021 to June 2023, was driven largely by an accumulation of dry powder, which grew by 51% to $43.6 billion,” lead author of the report Valerie Kor, told AsianInvestor.
Also read: Family offices in Asia are reshaping alternatives industry
The number of Australia-based family offices tracked by Preqin actively investing in 2023 was eight times the number it was in 2019, according to Preqin’s database.
As more family offices enter the Australian private capital market, they are reshaping investment strategies to adapt to the shifting economic landscape, said Kor.
“Asia Pacific family offices adopted a cautious approach toward their real estate and private equity portfolios but have more confidence in their private debt and hedge fund portfolios given the ongoing macroeconomic challenges and rising interest rates,” said Kor.
FAMILY OFFICES ENGAGE
Family offices in Asia Pacific have been turning to private debt as an attractive option due to its diversification benefits and floating-rate nature in a high interest rate environment.
64% of the respondents in Preqin’s family office survey expect private debt to perform better in the next 12 months, with 63% intending to increase their exposure to the asset class during the same period, Kor explained.
The family offices surveyed were also bullish toward hedge funds, with 57% expressing optimism for the performance of their hedge fund portfolio in the year ahead.
“In general, family offices we spoke with were of the view that in the past decade, hedge funds have been less relevant because of central banks’ market support,” Kor said, noting that that era is now over.
"With less intervention from central banks, markets can price instruments more freely – giving active managers an opportunity to capture the alpha.”
Family offices have also been cautious with private equity given valuation concerns.
"They have become more selective and strategic to reduce risk. They also seek to diversify their portfolios by adopting a manager-of-managers approach and choose funds that have exposure to a wide range of deals,” Kor said.
PERFORMING FUNDS
Private market interest from family offices has contributed to the growth in Australia's asset management industry as well.
“Australia’s AUM growth is in line with North America-focused AUM, which grew 31% over the past 18 months, with a 46% increase in dry powder and 25% increase in unrealised value. It has grown more than Asia and Europe, which grew 19% and 14% in the same period, respectively,” said Kor.
Investors, local and foreign, have been impressed with the performance of Australia-focused funds.
These funds (vintage years 2013 to 2020) demonstrated outperformance with a median net internal rate of return (IRR) of 14.5% at a lower risk level of 17%, ahead of North America (14.0%), Asia (14.0%), Europe (13.8%) and rest of the world (8.8%) according to the data.
“These investors include superannuation funds and Australian family offices as well as global sovereign wealth funds, government agencies and public and private pension funds,” she said.