The Rise of Family Offices as Private Equity Funds

In a recent survey conducted by BNY Mellon Wealth Management, it was found that family offices are increasingly moving away from traditional investment models and are now investing directly in companies. The survey revealed that a majority of family offices made multiple direct investments in private companies last year, with an even larger number planning to do the same in the upcoming year. This shift in investment strategy is significant, considering the number of family offices has tripled since 2019 and their total assets are estimated to be in the trillions of dollars.

According to the report, direct investment presents exciting opportunities for family offices to leverage their unique competencies. Founders of family offices, often entrepreneurs skilled in running private companies, are able to contribute their expertise, management advice, and capital directly to the companies they invest in. Additionally, family offices have the advantage of offering patient capital, which allows them to invest for the long-term, potentially capturing higher returns than traditional markets.

However, despite the advantages, direct investing also comes with its challenges. Family offices tend to invest in industries where they have expertise, which can limit their investment range. Furthermore, conducting thorough due diligence on potential investments can be difficult for smaller family offices. As a result, many are turning to larger wealth management firms and deal advisors for assistance in making informed investment decisions.

Family offices are also increasingly co-investing alongside private equity firms, allowing them to reduce fees and increase carried interest payments. This collaboration provides family offices with the opportunity to benefit from the expertise and resources of established private equity firms while still maintaining their autonomy in investment decisions.

The rise of family offices as private equity funds signifies a shift in the investment landscape. With a focus on direct investments, family offices are poised to reshape private markets and the private equity industry in the coming years. Despite the challenges that come with direct investing, family offices are finding ways to overcome them through collaboration and seeking assistance from external advisors. As the number of family offices continues to grow and their assets increase, it will be interesting to see how they continue to evolve and make an impact on the investment world.