Year in Review: Family Offices

From LP to GP, family offices are leading the pack in direct investing with their entrepreneurial and flexible approach.

Family offices have been gaining market share in private equity investing in recent years with no signs of stopping anytime soon. Having traditionally been investors in or the target of funds, family businesses are increasingly supporting management teams that are actively pursuing direct and co-investments of their own.

As Private Equity International reported in November, Livingstone Partners managing director David Sulaski, who specialises in mergers and acquisitions and debt advisory, said that one in five transactions involves a family office. Ten years ago he saw one in 100.

“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 told PEI.

Financial technology platform iCapital Network released a survey of 162 family offices in December showing that more than half of single-family offices invest in private equity, as reported by PEI. Of those, 40 percent do so directly.

The key aspect of family offices’ growth in private equity is their flexibility in terms of capital and hold periods and the ability to tolerate the illiquidity innate to private equity, Sulaski said.

As founders and owners of successful businesses, they have the entrepreneurial capacity to do direct investing, for which many public institutional investors lack the resources. They also have the operational expertise and understanding of their sector to make investments and run a portfolio company, he said.

Sulaski acknowledges that the rate at which family office investment is growing cannot be sustained indefinitely but, as active investors competing with general partners for transactions, they are here to stay.