In a recent survey conducted by BNY Mellon Wealth Management, it was discovered that family offices are transitioning into their own private equity funds, making direct investments into companies at an unprecedented rate. These family offices, which are the private investment arms of wealthy families, are increasingly taking a hands-on approach to investing by buying stakes in private companies and providing direct lending.
The survey revealed that a majority of family offices made at least six direct investments in the past year, with an even larger number planning to make the same number or more direct investments in the coming year. With the total assets of family offices estimated to be over $6 trillion and the number of family offices tripling since 2019, their influx of capital into private companies has the potential to reshape the private markets and the private equity industry.
Direct investment allows family offices to leverage their unique competencies, especially those acquired through founding and running private companies. By investing directly, they can not only provide capital to portfolio companies but also offer their expertise and management advice. This hands-on approach is particularly attractive to private companies in a time when banks are tightening lending and traditional private equity firms are doing fewer deals.
However, direct investing comes with its own set of challenges. Family offices tend to excel in industries where they have built their wealth or possess specialized expertise, which can limit their investing range. Additionally, conducting thorough due diligence on potential investments can be challenging for smaller family offices. As a result, many are turning to larger wealth management firms and deal advisors for assistance in making informed decisions.
The trend of family offices transforming into private equity funds and making direct investments in companies is on the rise. While this presents exciting opportunities for family offices to achieve higher returns and actively contribute to their investments, it also comes with its own set of risks and limitations. By navigating these challenges and leveraging their unique competencies, family offices have the potential to play a significant role in shaping the future of private markets and the private equity industry.