Family Offices are ‘Unique Beasts’

As competition for capital skyrockets, family offices experience a golden age

With competition at an all-time high for sources of investment capital, more and more GPs are paying close attention to the booming family office market.

“We’re in a second gilded age of wealth, with the wealth that’s being created in entrepreneurship in financial services and broadly around the world,” says Angelo Robles, the founder and chairman of the Family Office Association in Greenwich, Conn. “This will absolutely lead to more interest in creating family offices, and inevitably lead to more private investing as well.”

Robles estimates that—depending on one’s definition of a family office—there are roughly 7,500 in the United States today. However, the number of single-family offices (SFO) could be as low as 2,000, which leaves the rest in the multifamily office (MFO) category.

PitchBook, the PE database service, lists 1,780 single- and multifamily offices as a subcategory of LPs.

While family offices have always been important sources of LP capital for private equity, accessing this capital has never been easy or uniform.

“Family offices are a unique beast,” says Bob Rice, managing partner at Tangent Capital Partners. “They have different structures and different priorities.”

There is an important distinction between SFOs and MFOs, Rice adds. SFOs tend to like to invest directly in club deals where they will partner with another SFO that made its fortune in a particular industry sector, and together they will invest in companies in that sector. Multifamily offices act more like institutional investors, he says, and that’s where private equity has the best chance of raising capital for funds.

MFOs also continuously add families to put new money to work, and that creates an attractive pooled source for long-term capital, Rice says, with some having between $5B and $15B of assets under management—significantly higher than most SFOs.

Especially for SFOs, the idea of being charged management and performance fees, coupled with illiquidity, can be off-putting.

Still, Rice believes there is plenty of capital to be invested in private equity firms, and is bullish on family offices.

“The single most important thing a private equity firm can say to any type of family office is ‘differentiated deal flow,’” he says. “Your main argument should always be ‘I have deal flow that you will never be able to see in your world, and that’s why you should be investing in me.’”

Some families just don’t want to be that involved, notes Robles.

“Not everyone wants to create an SFO,” he says. “So some people are going to [say], ‘Let me get a good structure and good estate planning, good tax planning, and I’m just going to outsource the investment side.’”