One of the trends that I see happening in the Family Office world is sophisticated Family Offices are diversifying their private equity allocation by vintage years. Funds that form in "crisis years" such as 2020 historically earn the highest returns. Funds that formed in the year after a market peak reported internal rates of return (IRR) of 18.6%. Alternatively, one year before a market peak, the same set of funds reported an IRR of 11.4%
Family Offices have the advantage of having patient capital and statistics have shown that it is far easier to create alpha in the private (illiquid) markets than in the public markets. At the end of last year, assets in private market funds globally hit $6.5 trillion, a 170% increase over the previous 10 years, and a 10% increase for 2019 alone. But the best way to invest in the private markets is to diversify by vintage years, because nobody can accurately time the market. By investing in new funds each year, Family Offices are able to maintain a consistent exposure to the private equity sector.
Private equity has been a very popular asset class for Family Offices, but the most efficient way to invest in private equity is to spread out the years in which allocations are made.
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