Why Family Offices Continue to Shift Towards Direct Investments

Family offices continue to reassess traditional approaches to asset allocation, ultimately shying away from the conventional methods of portfolio construction. At an increasing rate, these savvy wealth vehicles are plunging into direct investment opportunities to utilize the many advantages offered, such as having greater control over investments or saving on costly fees. As we continue to monitor the direct investment activity within the private wealth landscape, we have seen a dramatic shift from private equity fund allocations to direct transactions. 

Advantages of Allocating to Private Equity Fund Managers

We often know private equity firms for one distinguishing feature: adding value for their investors. Often regarded as viable vehicles to gain exposure to private deals, private equity fund managers make it possible for accredited individuals and institutional investors to directly invest and acquire equity ownership in promising companies.

"The firms’ standard practice of buying businesses and then, after steering them through a transition of rapid performance improvement, selling them. That strategy, which embodies a combination of business and investment-portfolio management, is at the core of private equity’s success."

Prior to the tech boom, these entities were considered highly attractive to investors and entrepreneurs, as they were the primary resource with the sophistication necessary to improve management, logistics, and other essential components of a business. To provide fruitful turnarounds for developing ventures, private equity funds are well-equipped with the knowledge and resources needed to enhance operations and ensure successful investment returns. Many investors prefer opportunities in the private market as opposed to the public market given the overall inefficiencies within the space. These inefficiencies provide investors with a greater opportunity to generate above-market returns.  

Increased Shift Towards Direct Transactions

In the past decade, family offices around the world have reassessed their investment approaches with enhanced demand for transparency and control. This led to a greater emphasis on direct investments in private companies. In utilizing the FINTRX Buy-Side product, which offers full transparency into the direct investment activity of 3,000+ family offices worldwide, we continue to see a radical shift in the direct investment activity of these private groups. Because family offices have become larger and more sophisticated, many are well-equipped with the services and advantages of traditional private equity funds.

With an increased number of first-generation family offices entering the space, more groups are often less removed from the entrepreneurial experience. This direct exposure to creating and growing successful businesses has led to higher-quality investments and increased deal flow.  

Why Direct Investments are Attractive to Family Offices

As a leader in the family office space, we continue to see these private wealth groups taking part in direct investment opportunities given the many advantages of doing so. Direct investments ultimately give family offices more control over their investment portfolios, which often leads to greater returns in the long term. Circumnavigating traditional private equity funds gives family office investors the chance to determine which companies to invest in. This method eliminates costly fees charged by intermediaries and provides more opportunities to target companies whose values, experiences, and philosophies align with that of the family (or families) involved. 

Family offices look to identify lucrative opportunities to deliver strategic guidance, valuable introductions, and suitable capital allocation. Seeing that family offices do not have limited partners to answer to (with wide-ranging objectives and demands) they can deploy the patient capital necessary for companies to evolve and expand. This ultimately aligns with the best interest of all parties involved.

The utilization of our family office data and research platform has opened doors to the many investment trends that shape our global economy. Engineered to help our clients identify and access family office capital in an intuitive and efficient manner, FINTRX offers accurate family office research, built with a bottom-up approach.

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