Alternative to Private Equity: Partnering with the family office

In this issue, François M. de Visscher explores the concept of family enterprise partnering with family offices to defend their global market position or take advantage of growth opportunities.

As advisors and consultants to family enterprise, we always have to look at alternatives – whether in finance, governance or interpersonal relations. At this point in time, looking for alternatives in raising capital is increasingly important since in the financial markets, large financial institutions have shrunk their appetite for middle‐market investments and banks find middle market loans too expensive in the context of the new reserve requirements and other bank regulations.

Yet, family companies continue to require outside capital to defend their global market position or take advantage of growth opportunities. Recently a growing number of family companies have discovered the merits of partnering with a single family office to raise capital for growth or generational wealth transfer.

The concept of families investing in families is not new. What is new is the growing number of single family offices looking to make direct investments in private companies and partnering with the existing owners of family companies.

There are several reasons for this.

• For one, family offices worldwide are growing in number and are flush with liquidity. In a low interest rate environment and with an uncertain stock market environment, investing their excess liquidity becomes a real challenge. So many single family offices look for safe, stable and profitable long‐term investments to replace financial assets heavily damaged in the financial crisis. Direct investments in family companies, which can generate healthy returns for family offices without the expenses and fees associated with private equity funds, can fulfill this need.

• Secondly, family offices often think of their wealth as trans‐generational. Owning or being a partner in an operating business held for future generations, therefore, is in the DNA of the family and its family office. After all, the family made its money through a family business long before it became a family office.

While family offices are numerous and their capital is abundant, finding the “right” family office as a partner is the most challenging part.

Families in business have to decide what kind of family office partner would be best suited for their needs and cultural specificities. In addition to the cultural differences, family offices vary greatly with regard to their degree of involvement and control, their level of sophistication, their knowledge of specific industries and their own family or corporate governance. A partnership with a family office is a long‐term marriage. Finding the right mate is crucial to the success of the partnership.

Over and above the financial considerations, the success of the partnership with a single family office – like any other partnership ­comes down to one simple word: TRUST. So before you advise your clients to enter into a long term partnership with a single family office, ask yourself the question: “Can my client trust this new partner on the many levels required in the investment process?”

François M. de Visscher, president of de Visscher & Co., is an FFI Fellow and former president of FFI. He can be reached at [email protected].