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Snapshot: family offices evolve from LP to GP

Livingstone partner David Sulaski tells Private Equity International that more family offices of different backgrounds are moving in to private equity as direct and co-investors.

The number of family offices pursuing private equity type deals is on the rise, according to Livingstone partner David Sulaski. Ten years ago the mid-market mergers and acquisition firm saw about only one in 100 transactions involving family offices. Today, that has risen to one of five, Sulaski said.

“You’ve got this whole new class of buyers who used to be a limited partner and now they are competitive, creative, compelling GPs,” Sulaski said.

Family offices are able to be a competitive player because, unlike traditional private equity firms, they utilise flexible capital and flexible hold periods. This helps them “come to it with a different angle,” he said.

Brian Jacobsen, managing partner at family-backed private equity firm Grand Crossing noted that some families combine to invest in private equity together, hire one or two professionals, or build a full team like a private equity firm. And some families, ones with particular expertise in a sector, are looking to have more input in the investing process, as well as their portfolio companies.

Contributing to the rise of family offices as acquirers is a dislike for “the typical PE/LP structure where you’re locked up for a long time,” Jacobsen said.

“Once you commit to [a fund], you don’t have a say and a lot of people don’t like the blind pool funds and the huge fees paid every year. They’ve all been looking for alternatives.”

Every family has a different approach, and while some are prepared to invest directly, others at smaller sizes realise they would need to pursue co-investing as an option, he said.

Of the three investments made by the current Grand Crossing fund that launched last year, two are structured minority investments and one is a full buyout.

The range of families looking at private equity is also expanding, Sulaski noted. It used to be just name-brand families going into private equity, while lesser-known ones remained LPs or pursued co-investments, he said.

“That certainly has changed. I’ve seen family offices out of obscure places in Alabama, for example, with fortunes in industry, deciding to turn around and spend their capital and intelligence within those industries. It’s fascinating to see names and places you’ve never heard of, really making a name for themselves,” Sulaski said.

Jacobsen said he enjoys working with family offices because he has a chance to get creative outside of the standard private equity structure. It also helps the families, as well.

“When you’re able to be flexible, you see less competition and end up with more attractive terms,” he said.