Mid-market secondaries draw family offices

Small and mid-market secondaries funds attract family offices because of their high velocity of capital and low risks.

Family offices are looking to commit to small- and mid-market secondaries funds, Secondaries Investor has learned.

Many family offices don’t have the available resources and scale to invest in large-cap funds and are attracted to the high velocity of capital and low risk that often comes with mid-market investments, sources have said.

Richard Clarke-Jervoise, an investment manager at family advisory firm Fleming, Family and Partners (FF&P) said these factors make the mid-market the most competitive marketplace, because secondaries players with different resources can invest there. FF&P committed to a single secondaries fund this year but hopes that by 2017 secondaries will make up 20 percent of some clients’ portfolios.

Edmond de Rothschild spin-out Seligman Select is one lower mid-market secondaries fund whose LP base consists of a number of family offices, particularly US family offices with international programmes, a spokesperson from Seligman said. The firm held a first close of €24 million for its sophomore secondaries fund in November.

“Family offices often look to consolidate their European presence without added hassle, earn good value on investments and maintain strong relationships with general partners,” the spokesperson explained.

Another draw to this end of the market is the higher discounts achieved. Seligman noted it had achieved discounts of as much as 40 percent on deals valued at less than $40 million. These deals are often far too small for larger firms to consider, the spokesperson said. LPs like having access to a niche part of the market.

Small and medium transactions under $100 million are most suitable for family offices, according to François Gamblin, chief executive officer of London-based online broker SecondCap. Family offices are attracted to mid-market secondaries because it allows them to create the opportunities they seek. “The way they look at it is, a marketplace exists if they need it,” he said.

Northleaf Capital Partners managing director Michael Flood agreed, adding his fund of funds and secondaries funds receive commitments from a number of family offices as well.

“They like the cashflow profile. It’s more attuned to a direct strategy where you’re investing quickly and getting capital back equally as quickly.”