In 2023, II reported that family offices were slowing down the pace of direct private deals. Families were rethinking their skills with direct deals as they suffered losses in the face of inflation, higher interest rates, and volatility.
Fast forward to the present and direct deals are back on the table. Twenty-eight percent of attendees polled at the 3rd Annual East Coast Family Office Wealth Conference in Fort Lauderdale last week said they were currently engaging in direct deals. Further, 22 percent said, of any asset class, deals in private markets would have the biggest impact on their investment strategy and operations in the next one to two years. According to BNY Mellon data from November 2024, 71 percent of family offices plan to make direct investments in 2025, a 15 percent increase from 2023.
Compared to funds, direct equity and debt deals give single-family offices more control over their investments, including managing risk, and provide better transparency.
But the concerns reported in 2023 have not gone away. If anything, they have increased over the past few months following the negative economic impact of President Trump's changing policies on tariffs and his budget and tax proposals.
Attendees at the event emphasized that families need to do just as much due diligence when picking companies in which to deploy capital as any institution.
Speaking during a panel discussion on the topic, one family office executive said a CIO he once worked with was focused on direct investing, but failed to have a detailed plan to ensure that investments were only made in sectors where the office had an edge.
“He was doing some direct stuff in spaces where he had no expertise,” said the panelist. “And guess what? Those investments are not doing great.”
Another executive on the panel said the family wound down a lot of their direct investments because of disappointing returns, but also because of the opportunity costs. “We just weren’t getting paid for the time we were investing, and every time we do a direct deal it is at least a ten-year commitment."
Sources for good deals varied, with some families relying on trusted private equity firms to identify candidates. Many ruled out asking friends or family for ideas.
“Deals for us that have been the best are where we’ve built relationships with other venture firms over the years," said one attendee, who added that he's been surprised that competitors have been willing to share ideas. “Suggestions from friends and family and uncles and cousins. Most of those have not done well.”
Some families source deals through investment bankers, despite the conflicts of interest, while others have outlined specific family interests and goals and identify opportunities using that framework.
Family desires guide everything that we do, said a panelist, but "that still means operating in a vertical where you have some tailwinds to help cover mistakes,” he said. “Our family would be open to guidance, so the question for our team is how do we get to conviction about where we want to guide them?”
Due diligence and deep research is key. One principal said that the office will take three to six months to create and present a white paper to the family on any new sector it wants to invest in. This is time-consuming, but helps to reduce the chances of unwelcome surprises.
