Raising capital from family offices
A 25-Year Investor on Private Credit, Rates and Raising Capital
Navigating Real Estate, Venture Funding, and Market Shifts: A 25-Year Investor's Journey
Family office principals, real estate sponsors and founders who want to see how an experienced investor screens deals and handles rate risk.
The short version
A family office investor with 25 years in commercial real estate and finance describes how the portfolio looks today. It holds about 14 commercial real estate investments, alternative investments through a hedge fund, a public ETF, part of a bank and an incubator side now at 80 million in assets. The investor is cautious about private credit funds that have never been through a downturn.
The talk also covers mistakes. The investor missed how much rising rates would hurt consumer product and real estate businesses after rates jumped in April and May of 2022. Next investments focus on cash flow companies that need an extra million or $2 million. The family office has also started a capital raising arm so it can bring in other families.
Five points worth keeping
- Test private credit managers on downturns. The investor asks private credit managers when they started and whether they have been through 1991 and other downturns. Many started about 3 years ago. The concern is whether their balance sheets can withstand foreclosures.
- Look for a moat in technology. In tech, the investor wants something built like a moat as protection. AI is a worry because it could change every 3 to 6 months. AI can be part of a company, but not its main focus.
- Judge people, process and product. The investor looks at whether founders understand their experience and core competency. Operators who have hired, fired, grown revenue and cut costs stand out. On process, the investor wants teams that keep learning and keep improving efficiency.
- Rate risk was a costly miss. The investor did not pay attention to how much an interest rate jump could affect the portfolio. Some businesses are now caught by rates staying high. The lesson is to diversify and ask what counterbalances higher rates.
- Capital raising is part of due diligence. The family office cannot always write the checks itself. Its due diligence now includes how capital will be raised, through co-investing and bringing in other families.
In their words
"I look for private credit funds out in the marketplace, but I'm always nervous because they may not have the balance sheet to withstand foreclosures and issues that come through."
"As you know, in a high interest rate market, insurance does well, lending does well, and companies with big balance sheets that have liquidity do well."
"I didn't pay attention to how much that could affect my portfolio."
Facts and figures
- The family office holds about 14 commercial real estate focused investments, and its incubator side is now at 80 million in assets.
- The investor has 25 years of experience in commercial real estate and finance and owns part of a bank.
- The investor evaluates new ventures on people, process and product, and says AI could change every 3 to 6 months.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Navigating Real Estate, Venture Funding, and Market Shifts: A 25-Year Investor's Journey. 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 capital raising structures, broker dealer platforms and co-investment arrangements. Do not use AI to write your own legal agreements.
Related questions
- 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.
- Do family offices invest in funds or only direct deals?Family offices do both.
- 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.
Questions about this video
Why is the investor wary of newer private credit funds?
Many have only operated for about 3 years. The investor worries they have not been through downturns like 1991 and may lack the balance sheet to withstand foreclosures.
What kind of companies does the investor want next?
Cash flow companies that have been through a rough last 5 years and now need an extra million or $2 million. The investor also notes that insurance, lending and companies with big, liquid balance sheets do well when rates are high.
Why did the family office build a capital raising arm?
The investor cannot always write the checks alone. The arm lets the office raise capital for its ventures and bring in other families to co-invest.
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