FAMILY OFFICES, RIAS ON THE RISE IN PE INVESTING
Posted on in Editorial by Sonja
Financial advisors are increasingly helping wealthy families give investments as gifts, according to NYPPEX Private Markets, a New York-based private equity transfer administrator. This movement is having an impact on private equity secondary markets.
In its 2017 midyear report, NYPPEX says that it observed more donors making non-cash gifts, and more non-profit organizations accepting such gifts and selling them via its platform than the previous year. The trend is being driven by the growth of holistic wealth management and by clients seeking tax benefits and flexibility in their philanthropic initiatives.
During the second half of 2017, NYPPEX is recommending that wealth managers who handle alternative investments take steps to facilitate gifts and transfers of private equity assets on behalf of their clients. Whereas the private equity industry has traditionally looked toward wealth managers as a potential sales force for limited partnership or direct offerings, today’s individual private equity buyers have an advantage when investing with an advisor. Private wealth advisors, especially a multi-family office or RIA, are more proactive with the way they’re handling these investments.
Funds tend to go through a growth period of one-to-five years, during which they accumulate assets and the general partners make investments and call capital back, but the end investor receives little or no return. After the growth period, there’s typically a one-to-five-year harvesting period where the investor receives cash distributions. On the secondary market, private clients can access limited partnerships close to or at the harvesting period and avoid waiting while the fund is grown and invested.
Many wealth managers and some wealth management software programs now actively rebalance client private equity and direct investment portfolios, which has created selling and buying activity on the secondary market. According to the same report, the volume of secondary transactions for limited partner interests in private equity funds increased significantly during the second quarter. NYPPEX estimates that the limited partnership secondary transaction volume increased by 14 percent in the first half of 2017 to $20.6 billion for limited partner interests in private equity funds. Volume increased from $8.5 billion in transactions in the first quarter to $12.1 billion in the second quarter. Right now, more capital is looking for secondary offerings than there are available. Institutional investors like endowments, foundations, insurance companies and sovereign wealth funds are pressured to sell on the secondary market as they struggle to meet their annual funding obligations.