BlackRock is stepping in to offer services to family offices, who are increasingly seeking out more external resources to build their investment portfolios.
Like many institutional investors, family offices have big allocations in alternative and private investments and prize nimbleness so they can take advantage of deals during down markets. But the current market environment has also made family offices realize they aren’t as good at some forms of investing as they thought. Direct deals with companies are just one example. As a result more family offices are turning to asset managers and others for help. The relationships between family offices and managers are a private wealth management version of the strategic partnerships that institutions have been pursuing for years.
In BlackRock’s 2023 family office report expected to be published Thursday, family offices said their key challenges when investing in private markets were getting access to the best direct deals and managers (41 percent), high fees (40 percent), liquidity constraints (35 percent), and lack of transparency (30 percent).
Bankers and others are becoming “extensions” of family offices’ staff, according to Whitney Ehrlich, head of U.S. family offices at BlackRock.
“I do think what we are seeing is recognition from large single-family offices that they can really leverage their partners on the asset management side,” Ehrlich said. More families are coming to BlackRock for investment support of some kind, whether it is for help sourcing deals, due diligence, or allocations, she added.
“Given the volume of deals that are coming through to many of these large family offices, you need subject matter experts who can properly evaluate that. And most large single-family offices don’t necessarily want a staff of 50 to cover every segment.”
But while family offices simultaneously ask more of their external partners, they are also trying to shorten the list of managers they work with to simplify their operations — a trend that BlackRock and others are benefitting from because of their expertise across different markets and businesses. This is especially the case with private investments. Out of 120 family offices surveyed by BlackRock, 28 percent of respondents intended to increase allocations to private credit, 23 percent said they would increase investments in private equity direct deals, 22 percent want to put more money into private equity funds, and 8 percent plan to increase commtments to real estate. The family offices surveyed had an aggregate $243 billion in assets.
“When they can work with a partner who can build a portfolio of those types of co-invest opportunities or direct deals, or to bring them the right types of deals, that is really how you can build trust with these family offices,” Ehrlich said.
Family offices recognize that internal resourcing and technology are the areas they need the most assistance with and that’s not a secret. The wealthiest segment of private clients are growing in number and an increasingly valuable client of asset managers. Understanding a family’s values and what they really want to accomplish with their wealth is how the strongest partnerships are formed, Ehrlich explained.
“I think what that means is it raises the bar — there are a lot of different places that family offices can go to get solutions,” Ehrlich said.