Wealthy Investors Shift Focus to Direct Deals
As high-net-worth individuals continue to grow their wealth, they’re increasingly looking to bypass traditional private equity funds and invest directly in private companies. A recent survey reveals that half of family offices plan to make direct investments in the next two years, citing a desire for greater control and flexibility.
Why Family Offices Are Going Solo
Family offices, which manage the wealth of high-net-worth individuals, are often founded by entrepreneurs who understand the value of investing in private companies. By cutting out the middleman, family offices can negotiate better deals and leverage their expertise to drive growth. In fact, 52% of family offices prefer to do direct deals through syndicates, where other investors take the lead.
The Challenges of Direct Deals
However, family offices face two significant challenges when it comes to direct deals: deal flow and due diligence. With limited visibility into potential investments, family offices may need to sift through dozens of deals to find one that meets their criteria. Moreover, without the infrastructure of a private equity fund, family offices may struggle to conduct thorough due diligence on potential investments.
Building Relationships and Infrastructure
To overcome these challenges, family offices are turning to networking and building relationships with other family offices. In fact, 60% of family offices view networking as “important,” and 74% are eager for more introductions. Additionally, many family offices are establishing investment committees and boards of directors to formalize their deal process and ensure rigorous due diligence.
Off the Beaten Path
When it comes to their preferred private investments, family offices are venturing into niche and emerging asset classes. They’re investing in everything from real estate tax liens to fertility clinics, sale-leasebacks of real estate, whiskey aging, and litigation financing. These investments offer attractive returns, cash yields, and low correlation to traditional markets.
The Rise of Family Offices
As family offices continue to grow in size and sophistication, they’re becoming a major force in private markets. With their unique blend of entrepreneurial spirit and investment expertise, family offices are poised to play an increasingly important role in shaping the future of private equity.
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