According to a report by FINTRX covering data points on 2750 family offices, wealthy families are increasingly choosing to invest directly in private companies.
The study's findings are "consistent with broader trends in the ultra-high-net-worth market toward greater transparency, greater control of investments, and lower fees".
The desire to reduce fees and costs by family offices in this way is not surprising. Given that private-equity fund managers typically charge up to 2% in management fees and/or a hefty promote, there is clearly an incentive to mitigate costs that would eat into returns.
Additionally, ultra-wealthy families may operate with an investment time horizon of 100+ years. By contrast, private-equity managers may invest with a view to exit an investment within five to seven years. Family offices can therefore be very attractive to enterprises and entrepreneurs who want to bond with their investors and adopt a long-term strategy.
Family offices are also often interested in strengthening and broadening their networks and connections, including with other family offices. Indeed, Hassans regularly acts for families who have chosen to pool their capital and expertise in this way in the form of so-called "club deals".
By engaging in direct investing, family offices can use their permanent-capital status to better align their mindsets, values and interests with their investment strategies to maximize genuine cash-on-cash value rather than short-term rates of return.