Wealth

Wealthy investors are putting more money into private equity

Ezra Bailey | Getty Images

Rich investors have been pouring more money into private equity to avoid a potential stock market downturn, according to a new report.

Family offices, which are set up by families typically worth $100 million or more, now have 22.1 percent of their portfolios in private equity. That's up from 19.8 percent in 2015, according to The Global Family Office Report from Campden Wealth Research and UBS.

Wealthy investors have been drawn to private equity partly because of its strong returns in recent years, said Philip Higson, vice chairman for the global family office group at UBS. But since many nine-figure investors made their money by starting their own companies, they're also drawn to its more direct bets on individual businesses.

"Most family offices can trace their roots back to the growth and success of a single business, and as a consequence you will often find an emotional desire to back entrepreneurs and ideas they believe in," Higson said.

Family offices have meanwhile trimmed their hedge-fund exposure to 8.1 percent of their portfolios, from 9 percent last year, the report said. They've likewise pared back their equity holdings by 0.6 percentage points, to account for 25 percent of their portfolios. They hold 8 percent of their portfolios in cash.

Though their private equity holdings helped offset weakness last year from stocks and hedge funds, family offices' returns were way down from the prior two years. According to the report, they had an average return of 0.3 percent in 2015, down from 6.1 percent in 2014 and 8.5 percent in 2013.

Family offices said that in the future, they plan to continue beefing up their private equity holdings and reducing their exposure to hedge funds.

"More money will be going into private equity and out of hedge funds," the report said.

For the report, Campden surveyed 242 family offices around the world between February and May. Their average assets were $759 million.