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A version of this article first appeared in CNBC's Inside Wealth newsletter with Robert Frank, a weekly guide for high-net-worth investors and consumers. Register to receive future issues, directly to your inbox.
The number of family offices in the world has tripled since 2019, triggering 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 investment arms of wealthy families) exceeded 4,500 worldwide last year. North America has the highest proportion of family offices, with 1,682. More than half of all family office assets in the world are located 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 and almost all of them need a family office. And the number of people in the world worth $100 million or more (the typical threshold for a family office) has risen to more than 90,000, according to Wealth-X, an Altrata company. In other words, there is more room to run.
The rise of family offices has attracted the attention of private equity firms and other alternative managers seeking to raise funds. Blackstone, KKR and Carlyle have expanded their teams, funding events and creating products aimed specifically at family offices.
“Large private equity managers are trying to compete there by investing resources and time,” said Rachel Dabora, research analyst at Preqin. “Ultra-high net worth investors and family offices are really on their radar.”
At first glance, family offices are dream clients for alternatives. For years, family offices sought basic wealth preservation with traditional stock and bond portfolios. They are now more like institutional investors, seeking higher long-term returns with private equity, venture capital, hedge funds, infrastructure and real estate. According to Preqin, family offices have the largest allocation to hedge funds of any type of institutional investor.
It is true that the last two years have been difficult for private equity, venture capital and the profitability of many hedge funds.
More than half of the family offices Preqin surveyed said they were disappointed with their venture capital returns, while a third were disappointed with private equity. However, they remain hopeful for this year and beyond, with a majority saying private equity and venture capital will outperform in the next 12 months.
Private equity firms are aggressively attacking the family office market. Blackstone, which has served wealthy individuals for decades through its Private Wealth Solutions business, is expanding its Private Capital Group, which serves family offices, billionaires and the largest and most sophisticated individual investors. That team has doubled to 25 people in recent years and is likely to continue 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.
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