Raising capital from family offices
Do family offices invest in funds or only direct deals?
Short answer
Family offices do both. In my experience, 60 to 80% of ultra-wealthy single family offices prefer to go direct, but most also invest in some funds, often sourced through a private banker. Institutional investors lean the other way and mostly want funds. If you raise capital, I would offer both once you are large enough.
What I see among single family offices
Most single family offices lean toward going direct. That means they source something themselves, do the work and write the check into one company or one property. They feel more comfortable when they know the asset and the people behind it. But that is a preference and not a rule. Most family offices I talk to also hold some funds.
"In my experience, 60 to 80% of ultra-wealthy single family offices prefer to go direct in the deals, but some prefer a fund."
Where do the funds come from? Often from their private banker or a banking wealth management platform. So the fund exposure may arrive through a bank relationship, while the direct deals come from their own network and their own sourcing.
In this Q&A webinar I answer a question from Jim on joint venture deals versus a blind pool fund.
Summary and key takeaways from this video
A multi-family office that does both
Jose runs a multi-family office in Sioux Falls, South Dakota. When I asked how his clients invest, he told me all of their larger families invest directly or through private vehicles, such as private real estate and private equity funds. His firm also manages public stocks and bonds for everyone. So direct deals and funds sit side by side with the rest of the portfolio.
In real estate, Jose said they invest through direct deals and through mostly smaller private funds. On the direct side, they like to invest with people they know. That might be the developer, the property manager or the asset itself. That also keeps most of their activity in the Upper Midwest.
Jose explains how his office splits real estate between direct deals and smaller private funds, and how it finds both.
Institutions flip the ratio
Institutional investors look different. In my experience the 80/20 split flips the other way, and most of them want to invest in a fund. Family offices are more mixed. Kevin, who I interviewed in a fireside chat, told me he invests in individual products and also in funds, including a boutique firm with a consumer fund.
What this means if you are raising money
If you are established enough, I would offer both a direct investment model and a fund model. If you are not sure, start with the direct deal. Add the fund once you are large enough to offer both.
Some sponsors pair a fund with co-investment opportunities, which investors may like for the added access and transparency. These can let them lean further into the areas where they want more exposure.
Many sponsors talk to a securities attorney about how a single deal and a fund are structured and how they approach different types of investors before they start.
What I wrote about this
One thing worth adding is why some family offices still take fund exposure even when they like going direct. Many of the ones I know invest in a few fund-of-funds because they do not have the resources in-house to hire and fire 10 to 15 hedge fund managers. Also, in my experience institutions have often gone through funds because one-off diligence is costly, but I see that trend moving toward direct investments, just like family offices. So the split is not fixed.
"While the fund-of-funds name has seen better days, many family offices I know still invest in a few fund-of-funds because they do not have the resources in-house to hire and fire 10 to 15 hedge fund managers."
"Typically, institutions have been forced to go through funds because they can't afford the one-off due diligence, but the trend is moving to them doing direct investments, just like family offices."
On the record
- In my experience, 60 to 80% of ultra-wealthy single family offices prefer to go direct in their deals.
- For institutional investors the 80/20 split flips, and most of them want to invest in a fund.
- Jose's multi-family office in Sioux Falls, South Dakota, invests in real estate through both direct deals and mostly smaller private funds.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Ultra-Wealthy Investor Q&A Webinar, Midwest Multi-Family Office Investor Mandate Interview on Opportunity Zones & Fund Manager Investing. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around fund versus direct structures, co-investment terms and investor eligibility rules. Do not use AI to write your own legal agreements.
What to do next
- Decide whether your raise fits a single direct deal, a fund, or both.
- Ask each family office whether it prefers to go direct or to use funds.
- Consider co-investment opportunities if you run a fund.
- Build your network in your own region and asset type, since direct investors favor people they know.
- Many sponsors talk to a securities attorney about their offering structure.
People also ask
Why do many family offices prefer direct deals?
In my experience, they feel more comfortable when they source something themselves and know the asset or the people. Jose said his office likes to invest with a developer, property manager or asset it already knows.
Where do family offices find the funds they invest in?
Some come from their private banker or a banking wealth management platform. Others come through their own network and conferences.
Should I offer a fund or a direct deal?
If you are established enough, I would offer both. If you are not sure, begin with the direct investment model and add a fund later.
Related questions
- What is the difference between single and multi-family offices?A single family office works for one family and is built the way that family wants.
- How long does a family office take to make a decision?There is no standard timeline, and I would not trust anyone who gives you one number.
- Do family offices co-invest alongside other investors?Yes, many family offices invest alongside other investors, and they often feel more comfortable when another respected investor is already in the deal.
- What deal sizes do family offices typically write?There is no single typical size.
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