Why family offices are the new deal masters


I stood there reluctantly outside his palatial home. Its gigantic structure had somehow nestled itself into this quiet affluent Zurich neighbourhood.

We had spoken two weeks earlier after he had glossed over the teaser I had sent. Over the phone, he asked a series of respectful questions, which was intermingled with friendly off topic banter. I sent him an NDA to give him access to the data room and soon afterwards his assistant set up an appointment for us to meet in person.

The family office industry is, therefore, highly dynamic. And, this is useful in the digital age where knowledge, entrepreneurship and technology are now being brought together at breath-taking speed

After ringing the bell, a well-dressed man opened the door. He took my jacket and then led me through to a beautifully decorated room where he was waiting for me. Soon we were sipping tea, admiring his art collection, while taking in the beautiful views of the lake from the large bay windows.

He was not the first person that sprang to mind when I started this project. I had tried the banks who weren’t interested. I had tried the private equity funds, but the deal was too niche. And, the company I represented did not trust the venture capital funds.

Yet, he took the time to listen. In fact, he seemed excited. He didn’t ask about our exit strategy or quibble with what was on offer. His approach to due diligence seemed so much more personal. He was the principal of a family office.

Now it is true that most family offices don’t need to get wealthier. They already have wealth, so what they want to do is hold onto it. Many are conservative, but they can also be unconventional. Not all are closed to the idea of non-traditional investments, especially in private markets. A lot of it is to do with their own personal experience and their entrepreneurial spirit that has allowed them to develop their wealth in the first place.

Other institutional investors can be very homogeneous in their investment approach. They often fall back on the conventional wisdom of their industry, hiring the same investment consultants and adopting similar processes.

Family offices, however, are highly heterogeneous because often they’ve been set up for a particular purpose. Some are highly conservative and will only allocate to a single traditional asset class, while others are attracted to opportunities that many institutional investors would never consider.

The family office industry is, therefore, highly dynamic. And, this is useful in the digital age where knowledge, entrepreneurship and technology are now being brought together at breath-taking speed. It has created an incredibly diverse set of non-tradition investment opportunities that offer a unique source of returns.

While some family offices will shy away, others will embrace these new sources of risk premia. And when they do, it can be hugely beneficially to the risk-return profiles of their portfolios.

What is even more fascinating is that capital raisers know that these family offices are open to such transactions. Many target them specifically. And, for those with a developed network, it has got easier because their target audience continues to grow.

According to EY, there has been a ten-fold increase in the number of family offices worldwide since 2008. Some say there are as many as 10,000 private investment offices. The true number is almost impossible to gauge given they aren’t regulated, but there are certainly many thousands of them. They also manage huge sums of money, at least $4 trillion collectively, creating an investor-based that is difficult to ignore.

A lot of the attraction, however, is to do with the way they behave as investors. Many family offices care a lot about the companies they have invested in. This might come from their strong sense of responsibility that has been nurtured through owning businesses themselves. Although less relevant to capital raisers, this can be extremely important to a business owner who is looking for an investor.

For these business owners, it is important because they may be handing over the keys to a business that they have lovingly built up. They may also benefit from what the family offices might bring to the business. This could be for instance their valuable business experience, or their enthusiasm and willingness to actively help the business grow, or both. It is this combination that makes them appear to be reliable partners.

These characteristics, therefore, can put family offices in a privileged position. They may see a source of deal flow that is far more diverse and unique than what other investors have access to. It can give them access to deals that even some of the largest institutional investors struggle to tap into.

Family offices might just be the new deal masters of the twenty-first century.

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