Why direct investing keeps growing among family offices
Built on Chapter 19 of The Single Family Office by Richard C. Wilson. Full chapter text: FamilyOffices.com.
Few trends in the family office world have been as steady as the move toward direct investing. More families are buying stakes in private companies themselves, co-investing alongside funds, and forming clubs with other families. I expect that trend to keep growing.
The roots of the trend
Most wealthy families made their money in operating businesses. They understand how companies work. When they move into funds, many grow frustrated with fees, limited transparency, and timelines that do not match their own. Direct deals let them use what they know and keep more control.
What is pushing it further
Fee pressure. Families want to keep more of their returns. Direct deals and co-investments cut out layers of fees.
Longer time frames. Families can hold for decades. Funds usually cannot. That patience is an edge in buying and building businesses.
More sophisticated teams. Some family offices now have in-house teams that rival institutional investors.
Family business know-how. One founder I spoke with put it well. No one understands family businesses like other family business owners. That makes families natural investors in other family companies, especially at generation changes.
Hidden champions. Many strong family businesses need capital and a management refresh as founders step back. Families are well placed to provide both.
How families are doing it
Families take different paths. Some buy whole companies and run them as platforms. Others take minority stakes alongside operators. Many co-invest with private equity funds to learn the ropes. And a growing number form clubs and syndicates with like-minded families around one industry.
Most stay close to home
Most family offices, unless very large, prefer to buy operating businesses in their own country. Differences in culture and time zones make it hard to run a business from afar. Knowing the local environment deeply matters.
The risks have not gone away
Direct investing is still risky. Many young companies fail. Results come in a wide spread. The families that do well stay inside their circle of competence, do serious diligence, stage their money, and plan exits before they buy.
Building the right foundation
Before a family scales up direct investing, a few foundations should be in place. First, a written investment policy that says which industries, deal sizes, and roles the family will take. Next, a team, in-house or outside, with real deal experience. Also, a pipeline of deals that does not depend on one or two contacts. And clear rules about who approves each deal and how much of the family's wealth can go into private companies. Families that skip these steps often learn them the hard way, through a bad first deal.
Learn before you lead
Many families start by co-investing alongside experienced funds or families. They see how professionals source and structure deals before they lead their own. This apprenticeship costs less than learning on a solo deal, and it builds the relationships that bring future deal flow.
What this means for the industry
As more families invest directly, the lines between family offices, private equity, and merchant banks blur. Families lend, co-invest, lead clubs, and sometimes raise money for their own companies. Deal flow becomes a competitive advantage, which pushes more families to be visible and to build sourcing programs.
What to take from this
- Expect direct deals to keep growing.
- Use the family's patience and business know-how as an edge.
- Stay close to home and inside your circle of competence.
- Build sourcing and diligence, then plan exits, before scaling up.
This page is general information, not legal, tax, or investment advice. Speak with qualified advisors about how these trends apply to your family.
Questions and answers
Why are family offices investing directly? To cut fees, gain control, match their long time frames, and use their business know-how.
Do family offices invest abroad in operating businesses? Most prefer their own country unless they are very large.
What forms does direct investing take? Whole-company buys, minority stakes, co-investments, and clubs.
Is direct investing risky? Yes. Focus, diligence, staged funding, and exit planning reduce the risk.