Family offices are typically more flexible and patient than institutional investors, enabling them to capitalize on niche market opportunities that larger funds may find less accessible. Strategies focused on micro-cap and small-cap stocks are seeing high demand from family offices.
Long-Term Horizon and Patient Capital
Family offices are known for their long-term investment horizon. They can afford to be patient with their investments, which is a significant advantage when investing in micro-cap and small-cap managers. These funds may take time to mature and realize their full potential. The longer investment horizon of family offices aligns well with the growth cycle of smaller companies, which often require several years to fully execute their business plans and deliver on their growth potential.
Micro-cap and small-cap funds that focus on deep value investing, special situations, and international and emerging markets are likely to attract interest from our capital providers. Managers investing in small or niche markets, such as those in the Nordic countries or frontier markets, also attract significant interest from our capital providers.
Direct Investment and Ownership Influence
Family offices often prefer direct investments that provide them with significant influence or control over their holdings. Investing in micro-cap and small-cap managers can enable family offices to make co-investments or collaborate with the manager to acquire substantial corporate stakes, thereby gaining a more significant influence on corporate governance and strategy.
Our capital providers can help emerging managers operating under a fund or SPV structure acquire meaningful stakes in micro-cap and small-cap companies, thereby supporting their involvement in activist campaigns. This can lead to proactive engagement with management teams and board representation, where our family offices help emerging managers execute activist strategies and generate alpha.
Customized Risk Management
The flexibility of family offices allows for a more customized approach to risk management. They can effectively tailor their investment in micro-cap and small-managers to balance risk and return targets. By selectively investing in several small-cap, emerging managers, family offices can manage systemic risks while capitalizing on the unique growth opportunities these managers offer.
Seeking Alpha in Inefficient Markets
Family offices aim to generate alpha, or excess returns, above the market average. The inefficiencies in the micro-cap and small-cap realm provide fertile ground for family offices to discover undervalued companies that can yield alpha. Many ETFs and passive investment products exclude micro-cap stocks, which can leave alpha opportunities, albeit on a smaller scale, for managers with expertise in this space.
For family offices, adding micro-cap and small-cap managers to their portfolios can unlock unique opportunities for higher returns. By leveraging a long-term perspective and a tolerance for volatility, family offices can often find alpha with micro-cap and small-cap emerging managers.
