More than two-thirds (67%) of high-net-worth advisory practices expect to increase their allocations to direct investments or co-investments over the next two years, according to a new report from Cerulli Associates.
Only 22% of HNW firms indicated their plans to increase their use of third-party-managed private equity funds, the Boston-based research firm said.
Leading the trend to direct deals, Cerulli said, are multifamily offices, many of which were founded by successful executives and entrepreneurs who are comfortable making strategic investments in private companies given the source of their own wealth.
"Many family offices have moved away from traditional private-equity funds in recent years, due to a combination of poor performance and high fees," said Asher Cheses, an analyst at Cerulli.
Direct investing allows family offices to retain nearly complete control throughout the investment process and offers greater flexibility in negotiating terms with the underlying company, often leading to lower fees and better investment terms, Cerulli said.
"Another main factor gaining interest among next-gen clients is environmental, social, governance/socially responsible investing (ESG/SRI). As a result, family offices are beginning to make a more concentrated effort to introduce investments that are aligned with younger inheritors' values, including clean energy, gender equality, and human rights," Mr. Cheses said.