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A version of this article first appeared in CNBC’s Inside Wealth newsletter by Robert Frank, a weekly guide for high-net-worth investors and consumers. Sign up to receive future editions directly to your inbox. Family offices that invest directly in private companies may be taking on more risk than they realize, according to a new study. According to the 2024 Wharton Family Office Survey, direct transactions, where a family office buys shares in a private company directly rather than through a private equity manager, are very popular among family offices and have a significant impact on the portfolio. The proportion of these countries is increasing. However, many people are not leveraging their strengths as investors. And monitoring and trade procurement are becoming increasingly inadequate. The study found that only half of family offices that make direct private investments have private equity professionals on staff trained to structure and identify the best private deals. Additionally, the study found that only 20% of family offices that do direct business have a board seat as part of their investment, indicating a lack of mandatory oversight and oversight. Suggested. “The jury is still out on whether this strategy will work,” said Raphael “Rafi” Amit, a Wharton School business professor who founded and leads the Wharton Global Family Alliance. speaks. Direct trading has become one of the hottest investment trends for family offices. According to a recent study by Bastiat Partners and Kharis Capital, half of family offices plan to make a deal in the next two years. Many family offices see direct investing as a path to higher returns traditionally offered by private equity, but because they invest themselves, there are no fees. You can also draw on their experience in running a private business, as many family offices were founded by entrepreneurs who founded and sold their family businesses. However, this research suggests that they may not be taking full advantage of their experience. Only 12% of family offices surveyed said they invested in other family businesses. Amit said the findings may indicate that family offices simply see good opportunities in non-family businesses. The family office prides itself on patient capital and has been investing in companies for more than a decade to take advantage of the “illiquidity premium.” But when family offices compete for investments in private companies, they often stress that they don’t need the quick exits of private equity firms. The majority (60%) of family offices surveyed said their overall investment horizon was 10 years or more. When it comes to direct trade, their theory appears to differ from practice. Nearly one-third of family offices surveyed said they only have direct deals for three to five years. About half said they would invest for six or 10 years, and only 16% said they would invest for more than 10 years. “They are not taking advantage of the unique aspects of private capital, which is its more permanent and flexible nature,” Amit said. Family offices favor syndicated deals or “club deals,” where families invest in partnership with other family members or defer to a private equity firm to lead the investment. When asked how they find direct deals, most respondents said they rely on their professional networks, family office networks, or generate deals themselves, according to the survey. They also lean toward later-stage investments rather than seed or startup rounds. Research shows that a whopping 60% of deals were Series B rounds or later. When deciding which companies to invest in, family offices value the management team and leadership of the product. 91% said their main criteria was the quality and experience of their management team. Amit said family offices have a good chance of succeeding in direct deals, but the lack of professional staff, short time horizons and lack of board seats are “puzzling”. “It will take years to know whether this will be successful,” Amit said.
A version of this article first appeared in CNBC’s Inside Wealth newsletter by Robert Frank, a weekly guide for high-net-worth investors and consumers. Sign up to receive future editions directly to your inbox.
Family offices that invest directly in private companies may be taking on more risk than they realize, according to a new study.