Family offices are increasingly pivoting towards alternative investments, according to data collected by KKR and Henry McVey, chief investment officer of KKR’s balance sheet.
KKR and McVey surveyed over 75 family office chief investment officers, who on average manage north of $3 billion in assets. If there’s one key stat from the report you need to know, it’s this: Family offices on average are allocating 52% of their portfolios to alternative investments right now, and that marks an increase of 200 basis points since 2020.
What’s driving the ongoing push into alternative investments? The pursuit of alpha, yes. But family offices and private markets fund managers are often on the same timeline.
“Family offices are comfortable making long-term investments, a segment to which alternatives cater,” McVey said in an email to Term Sheet.
It’s no secret that fundraising is tough across the private markets right now—fundraising is a grueling endeavor, on average taking 22 months, up radically from the average nine-month fundraise we saw during COVID, Asante Capital managing director Laura Leyland told me. So, there’s the next logical question here—as they wade further into the private markets, what kinds of funds and managers are these LPs gravitating toward?
On the growth and buyouts side, there’s been a rush to top names. To Leyland, this fundraising environment is a tale of two cities, where LPs gravitate to the “top-quartile established brand names.”
However, emerging managers do have opportunities in this market, said Leyland. But you do have to have a track record—even if it’s short, if it’s luminous, that can go really far. Some newer managers can make waves with family offices if they’ve had a handful of “sexy exits,” as Leyland terms them—four to four and a half times plus is the standard she’s noticed.
This tracks with what David Zhou, head of investor relations at Alchemist Accelerator, is seeing on the venture side—that emerging managers have a shot with family offices. Track record matters a lot in these cases, too. If you’re starting a new fund out of Andreessen Horowitz or Sequoia, those logos also open a lot of doors and, without it, you may have to work harder to get the attention of a family office LP, Zhou said.
That said, family office CIOs still see private equity as a surer bet right now.
“They allocated more to VC in recent years and as a result, they face some vintage risk,” KKR’s McVey told me via email. “CIOs now seem more focused on private equity relative to venture capital because they are now focused on not only return on capital but also return of capital.”
(The emphasis is mine.)
But the overarching trend of family offices increasingly leaning into the private markets does mean there are long-term green shoots for VCs looking to match with family office LPs.
“In my conversations with family offices, anecdotally a lot of them have been allocating more to venture as an asset class,” Zhou told me. “The ‘private equity’ bucket is getting bigger for LPs—buyouts, growth stage, venture. That means some family offices are moving into double-digit territory in terms of allocation to venture.”
See you tomorrow,
Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
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Joe Abrams curated the deals section of today’s newsletter.
VENTURE DEALS
- Latigo Biotherapeutics, a Thousand Oaks, Calif.-based developer of non-opioid pain medications, raised $135 million in Series A funding. Westlake Village BioPartners, 5AM Ventures, and Foresite Capital led the round and were joined by Corner Ventures.
- Bold, a Bogotá, Colombia-based provider of electronic payment solutions for small businesses in Colombia, raised $50 million in Series C funding. General Atlantic led the round and was joined by International Finance Corporation and existing investors InQLab and Amador.
- Hippo Harvest, a San Francisco, Calif.-based developer of sustainable greenhouse technology and grower of fresh produce, raised $21 million Series B funding. Standard Investments led the round and was joined by Congruent Ventures, Amazon’s Climate Pledge Fund, Hawthorne Food Ventures, and Energy Impact Partners.
- Overworld, a remote-based video game studio, raised $10 million in seed funding. Hashed, The Spartan Group, Sanctor Capital, and Galaxy Interactive led the round and was joined by Hashkey, Big Brain Holdings, and Foresight Ventures.
- FlowFi, a Los Angeles, Calif.-based technology and data platform for businesses with a marketplace of finance experts, raised $9 million in seed funding. Blumberg Capital led the round and was joined by Parade Ventures, Precursor Ventures, Special Ventures, 14 Peaks Capital, and Cooley LLP.
- Rogo, a New York City-based generative AI platform designed for investment banks and other financial institutions, raised $7 million in seed funding. AlleyCorp led the round and was joined by Company Ventures, BoxGroup, and ScOp Ventures.
- RapidClaims, a New York City-based provider of AI-powered medical claim automation software, raised $3.1 million in seed funding. Together Fund led the round and was joined by Better Capital, Neon Fund, Peercheque, DeVC, and others.
- Spacegoods, a London, U.K.-based wellness brand and provider of nootropics and functional mushrooms, raised £2.5 million ($3.1 million) in seed funding. Five Seasons Ventures led the round and was joined by Redrice Ventures, Slingshot Ventures, and G-FUND.
- Merit Medicine, an Austin, Texas-based provider of AI-powered technology designed to predict increases in medical costs and health insurance claims for employers, raised $2 million in seed funding from LiveOak Ventures.
- Amazec Photonics, an Oudkarspel, The Netherlands-based developer of cardiovascular monitoring tools, raised €1.5 million ($1.6 million) in seed funding. PhotonDelta led the round and was joined by others.
PRIVATE EQUITY
- Armis, backed by One Equity Partners, agreed to acquire CTCI, a Portland, Ore.-based provider of software designed to provide advanced warnings of cybersecurity attacks. Financial terms were not disclosed.
- Perforce Software, backed by Francisco Partners and Clearlake Capital Group, agreed to acquire Delphix, a Redwood City, Calif.-based provider of data management software designed to automate data security and perform other functions. Financial terms were not disclosed.
EXITS
- Expro (NYS: XPRO) agreed to acquire Cortrax, an Aberdeen, U.K.-based drilling technology company, from Buckthorn Partners for $210 million.
FUNDS + FUNDS OF FUNDS
- Accolade Partners, a Washington, D.C.-based fund of funds, raised $505 million for its ninth fund focused on venture and PE growth funds, $400 million for its third fund focused on only PE growth, and $131 million for its first fund focused only on venture capital.
- CORE Industrial Partners, a Chicago, Ill.-based private equity firm, raised $685 million for its third fund focused on manufacturing and industrial technology companies and its first fund focused on the industrial services sector.
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