Family offices are typically more flexible and patient than institutional investors, enabling them to capitalize on niche market opportunities that more considerable 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, and the longer investment horizon of family offices matches well with the growth cycle of smaller companies, which might need several years to execute their business plans fully and deliver on their growth potential.
Micro-cap and small-cap funds focusing on deep value investing, special situations, and international and emerging markets will likely attract interest from our capital providers. Managers investing in small or niche markets like 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 allow family offices to make co-investments or work with the manager to acquire sizable corporate stakes, thus allowing for more substantial influence on corporate governance and strategy.
Our capital providers can help emerging managers, under a fund or SPV structure, acquire meaningful stakes in micro-cap and small-cap companies to assist with 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 seeking to exploit the unique growth opportunities that these managers offer.
Seeking Alpha in Inefficient Markets
Family offices aim to achieve 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 of the ETFs and passive investment products do not include micro-cap stocks which can leave alpha opportunities, albeit at a smaller scale, for managers with expertise in the space.
With the ability to deploy dedicated research resources and specialization in specific industries or sectors, small-cap, and micro-cap emerging managers can uncover and take advantage of mispricings that may be overlooked by larger market participants.
Higher Returns and the Benefits of Diversification
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.
