Two thirds of Family Offices have been forced to diversify their investment portfolio as a direct result of COVID-19, looking towards the likes of Biotech to fill a hole caused by declining asset classes.
At the start of 2020 we reported that 68% of Family Offices in America invested in property which was beaten only by Private Equity (83%), Equities (81%) and Fixed Income (78%). Fast-forward to 2021 and Family Offices overwhelmingly predict that interactive technology will generate the most wealth over the next 12 months.
44% of Family Offices when surveyed by Agreus said they think Virtual Technology will generate the most wealth in 2021 followed by one in three who believe it will be biotech. Unsurprisingly after the success of Single Family Office, Athos Service GmbH.
The Munich-based Family Office became one of few to have a single holding in their portfolio valued at over $12BN after their controlling stake in BioNTech made headlines across the globe. The Strüngmann brothers offered an insight into the endless possibilities of biotechnology and with a global population desperate for a dose of its new vaccine, there are plenty of profits to share.
With the youngest generation more prone to taking risks and diversifying, it is likely they will lead the change. Especially as 65% of them said they would diversify the Family Office investment portfolio as soon as they have the chance. Current leaders aren’t so sure however with 63% believing wealth generated in 2021 will come from Baby Boomers and just 17% wagering on millennials being the main source of wealth over the next 12 months.
While the generation of leader is up for discussion, the generation of wealth is not.
Los Angeles based Vasco Noya di Lannoy is the Chief Investment Officer and Co-Founder of Epicenter Landcorp Family Office and having diversified his own investment portfolio steadily over the last five years, offers the three tangible next steps any Family Office should take to diversify their portfolio.
My Family Office focuses on two key areas, real estate and technology. Our portfolio is incredibly diverse and includes residential, industrial and hospitality real estate as well as software, e-commerce and biotechnology. Family Offices are currently very attracted to these assets, especially due to the coronavirus pandemic but they often struggle with where to begin. These are the three options I would advise any Family Office to take in 2021 before diversifying into a new area:
1) Start investing through a fund with a manager who knows the sector
2) Co-invest with other Family Offices who have those capabilities in-house
3) Bring relevant resources in-house who are expert in the sector
The option of co-investing is interesting because it is not as expensive as bringing an investment team in house but allows you to knowledge share. However, it is without a doubt that bringing these resources in-house within your Family Office will yield greater returns, not just because it allows for greater autonomy but due to the coronavirus pandemic and its impact on the biotech industry.
Many are claiming that the biotech space, from an investment capacity, has gained interest in the last few months but actually, it is an area that has been growing for some years now. We started to invest in the area four years ago but the last few months have increased the valuation of the industry and so it has become much more expensive to invest in.
It then becomes about who has access to the lowest prices and who doesn’t. Investing through a fund manager or co-investing with other Family Offices are not going to offer the same exposure or access to opportunities and this is when bringing in an in-house investment team is most valuable.
If you rely on fund managers and co-investors, you will never be at the top of the game but it does take a lot of time, money and resources to get there and it depends on how hungry a Family Office is to succeed in a particular space.
Family Offices have a big appetite and want to build up a large suite of investments but it really comes down to their level of determination and seriousness about diversifying their portfolio into a particular area.
For a family not entirely sure about a space and wanting to experiment in 2021, a fund manager may be the best route but for those with an ambition to truly monopolise the space and receive the best return, bringing an in-house investment team is ultimately the best option.
With the right guidance and resources, opting to use in-house trusted professionals to both review external providers and make direct investments can allow for the greatest level of control while facilitating the highest returns.
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