- Family offices fall prey to “adverse selection”
- To navigate high-priced deal environment: No FOMO
- Direct PE competition can be intense, with herd mentality
1. What sectors, sizes and geographies does the Gurvitch Family Office focus on?
We are very much agnostic, investing in a diversified and somewhat opportunistic global portfolio of public and private securities, hedge funds, real estate and venture capital. We have private investments in the U.S., India and China, as well as a public markets equity portfolio with a global focus. We invest directly, with and without co-investment partners, and, with decreasing frequency, as LPs in fund vehicles with a demonstrated record of investment success and/or a timely investment theme they’re looking to exploit.
In general, we seek stable growth businesses with positive cash flow where management has a substantial, long-term and aligned interest in the company. We aim to identify companies with strong organic growth prospects, supported by favorable industry tailwinds and demographic trends.
We currently have investments in areas as diverse as merchant power, Indian residential real estate development, distressed residential land, ride sharing/mobile transportation, location services, tech-enabled financial services and social media.
2. Where are you and other family offices looking to invest in 2018?
Over the past several years — notwithstanding the many who’ve been skeptical of this market — investors have been lulled into assuming ever greater levels of risk in their portfolio constructions, often without fully comprehending the correlations between their various investments both within and across asset classes.
This has included an increased exposure to equities, particularly in developed and emerging markets, as well as a wide spectrum of credit lending, volatility and macro and trend following strategies. But perhaps more than anything else, within the family office community, there has been an increased interest in making direct private equity investments. Investing directly allows high-net-worth families to avoid or minimize the need to invest as passive limited partners in traditional transactional-focused, non-discretionary blind-pool private equity funds.
Family offices often fall prey to “adverse selection,” having only secondary or tertiary opportunities presented to them, and only after more established and experienced investors passed on the opportunity. Compounding the issue, the limited family office investment staffs often lack the experience and discipline to avoid the temptation to look “everywhere” and “anywhere” for investment opportunities. Conversely, they unduly rely on achieving their investment objectives by participating in co-investment opportunities with the private equity funds in which the family is otherwise invested. In practice, it is extremely difficult to successfully execute a thesis-driven investment program with limited staff, expertise and resources.
3. Talk about some recent opportunities the Gurvitch Family Office has targeted.
On the private side, we are fortunate to be presented with a wide range of investment opportunities, both directly and through managed special-purpose vehicles. With that said, a review of our historical investment experience suggests we are not particularly good at making direct seed or early-stage venture investments and, as such, spend very little time in the space.
We do, however, focus on later-stage technology growth equity investments, but not “bridge to IPO” rounds. Particularly where we see big ideas with the potential to become multibillion-dollar public companies in industries where there’s a large total addressable market with winner-take-all economics and high barriers to entry. Given the intense interest private tech investing is garnering and the vast amounts of “low-return” capital available, we are finding it increasingly difficult to deploy capital comfortably. The same dynamic can be said to exist in many markets and sectors of real estate.
On the public side, we continue to maintain a core portfolio of global equities supplemented by satellite exposure to select geographies and industry sectors (biotech, finance and technology), both directly and through SMAs.
Perhaps most importantly, we feel no pressure to deploy capital in this environment and are quite comfortable harvesting and maintaining meaningful cash balances.
4. How do you navigate the high-priced deal environment?
As value-oriented fundamental investors, we view all opportunities through a cynical lens and are never haunted by a fear of missing out, particularly this late in the recovery cycle.
While there are many ways of making money, we focus only on what we believe we understand and do well and are happy staying in our lane. As we matured, we are increasingly comfortable in our conviction that when business ideas or valuations don’t appear to make sense or comport with our view of reality, we walk away rather than adjust our view.
5. What is competition like in the market — are you seeing other family offices competing directly with PE for deals?
The competition in the direct private equity space can be intense, often driven by a herd mentality that emerges within family offices when it is announced (or speculated) that a highly recognizable family office, individual or institution/fund intends to participate in the transaction.
We’ve observed both the heightened desire of individual families to collaborate in direct private equity investments as well as the difficulty in doing so successfully. This is attributable to the joining of like-minded and similarly positioned families not being able to overcome the inherent lack of a financially sophisticated and appropriate investment infrastructure.