Direct Investing

GFOC 2020 _Randy Castleman.pdf

Direct investments appeal to family offices because they not only eliminate the management fees charged by investment firms, but also because the investments can align more closely with the values and mindset of the investor.

--- NEPC Direct Investments (Part 1): Trends & Motivations

Direct Investing Is Not a Strategy

Direct investing can be an effective, rewarding way for family offices to capitalize on domain expertise and network, increase exposure to emerging companies, and reduce fees, but it is not a strategy in and of itself. Optimal outcomes require

... considering overall asset allocation goals

... evaluating deals as part of a developing portfolio

... understanding a company's capital need over its entire financing life cycle

... planning reserves for follow-on investments

...weighing the value and risk of board seats

Direct Investment Resources works with family offices to optimize outcomes and drive returns by

  • bringing professional diligence methods to the evaluation of each opportunity

  • evaluating each opportunity relative to the family's goals for the asset class

  • structuring each investment to manage risk and optimize for upside

  • taking board or observer seats as appropriate to maximize visibility and influence

  • managing each investment to liquidity

  • sharing its own deal flow and, only when appropriate, that of its client base

Family Office Exchange (FOX) research indicates that family offices are moving away from the more traditional “manager of managers” approach as they reconsider the assumptions behind their private equity portfolios, with many choosing to invest directly in real estate and operating businesses, bypassing a manager and fund structure. Success for active family office investors will be determined by the willingness to commit the necessary capital, resources, and investment expertise in order to attract quality deal flow, and to select - and structure - investments with a high likelihood to generate strong returns.

--- Family Office Exchange's Growing Interest in Forging a Direct Investment Path

Direct investments, co-investments, and secondary purchases are attracting more interest from families, in part because they offer a lower cost method of accessing private investments, as well as allowing for immediate capital deployment. For many families, heritage as business owners also makes direct investing (versus fund investing) appealing. While these direct investments can offer significant return potential in their own right, the complexity, risk, and resources required to evaluate these opportunities is even greater than is the case for fund selection.

-- Cambridge Associates, Private Investing for Private Investors

Stewardship Alignment Returns