Family Office Thinking Over Direct Investment – Dentons Study

Editorial Staff

9 January 2023

Volatile financial markets and the highest inflation rates in four decades have galvanized family offices around the world to be even more enthusiastic about private markets, bypassing funds altogether to put money directly into companies.

However, family offices, particularly those on the smaller end of the spectrum, realize that they need resources and help to execute these ideas successfully, a new industry survey shows.

The Direct Investing Survey Report, a 38-page production from Dentons Family Office, part of global law firm Dentons, examines the details of the kind of investment strategies, resources and goals that family offices have. The study was produced in association with several survey partners including Family Wealth Report and the UHNW Institute.

“While many family offices are braced for the worst as investors, they are also continuing to search for the best direct investments in public and private markets. An increasing number of families are interested in direct investments in growing companies, especially in the healthcare and technology sectors,” Edward V Marshall, global head of family office, Dentons, said in the report. “This report examines how family offices are thinking about allocating capital to funds versus going direct. Private equity is a key focus. Many families want to back early-stage growth enterprises in key sectors, rather than participate in mega rounds involving the largest private equity fund managers.”

“We can see that larger family offices are better positioned to look through current market threats, such as inflation or market slumps. For example, the largest single-family offices and family enterprises , with over $1 billion in assets under management , are slightly less concerned about inflation , but the smallest SFOs and FEs, with under $250 million, are slightly more concerned about inflation .”

“The same pattern exists on being patient and looking for lower valuations before adding risk; the largest SFOs and FEs are less inclined to take this view, while the smallest are more likely to be watching and waiting for lower valuations,” Marshall said.

The findings of the survey are based on the views of 188 individuals at family offices from 32 countries, with 44 of them based in the US. Most respondents work at family offices or are advisors to one or several family offices. Some 24 per cent are family members. In other details, half of the respondents work in C-suite roles, and 21 per cent are investment professionals.

The study examines investment strategies of FOs: why direct investment is gaining attention and what the challenges are in order to carry it out; the cryptocurrency and digital assets space; and the case for or against working with external partners.

In its overview of the macroeconomic and investment concerns of FOs, the report said: “Family offices are worried about various threats in 2023, but inflation, recession and the economy are foremost on their minds. Asked about the current market environment, over two thirds of family offices are very concerned about inflation and are buying assets that will benefit from inflation. This number increases to 80 per cent in the Middle East.”

“Seventy per cent are taking a wait-and-see approach, poised to add risk when valuations fall, while others have already started to hunt for bargains – just over half of family offices say they are taking advantage of market falls to add more equity exposure,” it said.