Direct deals or fund investments? The importance of considering each family office’s unique needs, risk tolerance and long-term objectives.

Private Equity Insights

The world of family offices is challenging to penetrate and understand. Family offices operate discreetly to safeguard the family’s interests and privacy. Despite this discretion, there is a growing need for information flow and collaboration among family offices, leading to the emergence of various family office clubs (such as SFO Alliance, Campden Wealth Institute, Horizon.org, etc.), and multi-family setups.

Unlike more institutional investors with standard allocation guidelines like the commonly referenced 60/40 rule, family o ices face unique and diverse needs that make it difficult to provide definitive allocation guidelines. Factors such as liquidity needs, risk appetite, entrepreneurial skills, financial literacy, and succession planning vary significantly among family o ices. The needs also vary depending on the vintage of the family o ice investment history and whether the principal is first, second, third, or further generation since its setup. Younger family o ices prioritize returns and wealth generation over wealth preservation, which was more common in traditional approaches aiming for lower annual returns.

Family offices have a range of investment options available when considering private market investments, each offering unique opportunities and considerations. These options vary from higher risk, more concentrated approaches to diversified strategies that cater to different risk appetites and investment preferences.

Direct Investments: One approach favoured by family o ices with entrepreneurial backgrounds is direct investment. This strategy involves investing directly in ventures where the principal remains actively involved, leveraging their expertise and competencies in a particular field. While direct investments can o er high rewards, they also come with higher risks, including the potential for losing all the initial capital. Additionally, direct investments require significant operational involvement and may entail additional setup costs. However, owning a business can be appealing for principals deeply engaged in the venture. Club Deals: Another option gaining popularity among family o ices is the club deal model. Instead of investing independently, family o ices are increasingly collaborating with like-minded families through family o ice clubs to make direct investments in companies. This collaborative approach allows for risk-sharing, joint due diligence e orts, and value creation opportunities. Collaborating with other family o ices o ers access to a wider range of resources and expertise, providing the opportunity to gain control over assets and invest over an extended investment horizon. Club deals present a compelling option compared to private equity sponsors when sellers prioritize the long-term advantages of partnering with a

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