According to multiple reports, family offices are taking a more hands-on approach during the pandemic times by directly investing in companies that seek capital.
Family offices are undeniable assets to affluent families worldwide. And as the global pandemic unraveled, the FOs started helping their clients to access highly-promising opportunities that were traditionally reserved for institutional investors. As a result, families get considerate advice along the entire process, while the firms in need of capital gain proper funding.
The trend to skip private equity and venture capital funds and invest directly started after the Great Recession. Family offices clearly observed the benefits of direct communication with capital seekers, such as greater returns for the clients and the ability to take a more entrepreneurial approach. As a result, the number of direct investments grew threefold since 2010, according to a report by Fintrx.
At this point, over half of all family offices in the world showcase the dominance of the direct investments in their portfolio. The health and economic crisis induced by the pandemic left the majority of the world’s population floating overboard, which, in turn, gave the wealthy families and their advisors an opportunity to throw a financial life preserver to the businesses in distress.
It’s worth mentioning that the interest in direct investment took a short pause with the initial social distancing orders. However, just like the stock market, it revitalized rather quickly. And while the stock market is very likely overvalued and will continue to disappoint investors, direct investing is very likely to stay among the most influential family office trends.
In terms of the structure of family offices that actively partook in the direct investment notion, there are a few valuable highlights. Mainly, the newer, next-gen driven multi-family offices were present at the scene. However, the single-family offices are not too far behind and are believed to soon match the multi-office pace. The fields that received the most attention are the recently skyrocketing technology sector and the conventional safe-haven, the real estate.
Another discussion-worthy point is that wealth itself is not enough ground for wise investing. Although the majority of established family offices have enough experience in a variety of areas, direct investing in particular calls for an advanced level of attention, as it is generally riskier than most of the other conservative solutions.
There are several things that family offices can do in order to minimize the risk that comes along with financing a distressed company. Mainly, it is the meticulous screening process. Even the established and experienced private equity firms go through hundreds of options before investing in one. Careful selection is key to low-risk direct investing.
Additionally, experts advise to keep up a healthy balance between investing through funds and directly. Co-investing with fellow family offices can be one of the ways to approach this. By putting together the skillset, expertise, and funds of several families and offices, the chance to profit is significantly higher.