Latest / The High Net Worth Podcast with Fexingo: Wealth Management, Tax Strategy, and Affluent Finance / How Ultra-Wealthy Families Use Family Offices for Direct Private Equity
Transcript
- Lucas: So we've spent a lot of episodes talking about structures that ultra-wealthy families use — captive insurance, mineral rights, structured notes. But I think there's one vehicle that sits above a lot of them in terms of scale and control. The family office itself. And specifically, how family offices are increasingly doing direct private equity deals. Luna: Direct as in, instead of writing a check to a Blackstone fund, they're buying companies themselves? Lucas: Exactly. And not just small companies. We're talking about families with net worths north of $500 million setting up their own investment teams to source, evaluate, and hold private companies directly. The Pritzkers are the classic example here. Luna: The Hyatt hotel family. Lucas: Right. The Pritzker family office, called the Pritzker Group, has been doing direct private equity for decades. They've made over 50 investments in companies like Transtar, a freight rail company, and they own a majority stake in the Marmon Group — that's a conglomerate with sales over $8 billion. They don't need to pay a 2 and 20 fee structure to someone else when they have their own deal team. Luna: And that fee saving is massive. I mean, if you're committing $100 million to a traditional private equity fund, you're paying $2 million in management fees every year, plus 20 percent of the profits. Lucas: So direct investing can save tens of millions over the life of a deal. But it's not just about cost. It's about control. When you invest through a fund, you're a limited partner. You have no say in which companies they buy, when they sell, or how they operate. With a direct investment, you own the company. You set the strategy. Luna: But that also means you need the expertise. You can't just have your cousin who runs a small business doing the due diligence on a $200 million manufacturing acquisition. Lucas: And that's the barrier. Setting up a family office that can do direct private equity requires hiring a dedicated team. We're talking former investment bankers, private equity professionals, lawyers, accountants. The annual operating cost for a single-family office can run $1 million to $5 million, depending on complexity. So you need a certain scale for it to make sense. Luna: What's the typical minimum? I've heard numbers like $100 million in investable assets just to justify a family office, but for direct deals you might need even more. Lucas: Right. A good rule of thumb is $100 million to $250 million in liquid assets to set up a single-family office. But for direct private equity specifically, many family offices target deals where they can invest $5 million to $50 million per transaction. That means the family office itself usually has at least $500 million in total assets, because you need to be able to write those checks and still stay diversified. Luna: And what about families that are wealthy but not quite at that level? Say $50 million to $100 million. Do they just have to stick with funds? Lucas: There's a growing trend of family office investing clubs or syndicates. Groups of families pool their capital to do direct deals together. They share due diligence costs and diversify across multiple investments. There are also platforms like iCapital that provide access to direct co-investment opportunities with lower minimums, sometimes as low as $100,000. So the barrier is coming down. Luna: That's interesting. But I want to push back a little. Direct private equity is inherently riskier because you're concentrated in a few positions. A traditional fund might own 20 to 30 companies, so one bad deal is diluted. If you own three companies directly and one goes under, that's a big hit. Lucas: Absolutely. And that's the trade-off. You get lower fees and more control, but you take on idiosyncratic risk. The families that do this successfully tend to be very disciplined about sector diversification and stage of investment. They might have one portfolio company in healthcare, one in industrials, one in tech. And they might do both growth equity and buyouts. But the risk is real. Not every direct deal works out. Luna: Can you give an example of a direct deal that didn't work? Lucas: There aren't a lot of public failures because these are private, but one that's been written about is the Wendel family office. That's a French family that's been around since the 1700s. In the early 2000s, they did a direct investment in a company called Saint-Gobain — not that Saint-Gobain, a different one — that turned out to be a fraud. They lost a significant amount. The lesson is that even sophisticated families can get burned if they skip proper due diligence. Luna: So how do the best family offices mitigate that? They must have some process. Lucas: The best ones operate like a mini private equity firm. They have a formal investment committee, they use external advisors for industry expertise, they run financial models, they do management interviews. Some even take board seats. The Pritzkers, for example, have a team of about 30 investment professionals. That's serious infrastructure. Luna: And they're not just buying companies; they're also actively managing them. That's a different skill set than just picking stocks. Lucas: Exactly. It's a long-term commitment. The average hold period for a family office direct investment is seven to ten years, sometimes longer. They're not flipping companies. They're building them. And because they don't have a fund life to worry about, they can be patient. That's actually an advantage over traditional private equity, which typically has a ten-year fund life. Luna: So the ultra-wealthy are using their family offices to do what institutional investors do, but on their own terms. Lucas: And it's becoming more common. According to a UBS survey from late 2025, about 45 percent of single-family offices now do direct private equity, up from 30 percent five years ago. It's a trend that's accelerating. And I think it's worth noting that this isn't just about wealth preservation. Many families see it as a way to build intergenerational wealth with a hands-on approach. Luna: Yeah, there's a legacy aspect too. Passing down a portfolio of businesses that the family understands and is involved in, rather than just a collection of fund statements. Lucas: That's a really important point. And it speaks to why we spend time on this show talking about these structures. Our conversations are meant to help you think about your own financial decisions, whether you're managing a family office or just your own portfolio. If today's episode was worth a coffee to you, you can support the show at buy me a coffee dot com slash fexingo. No pressure, just a way to keep these ad-free conversations going. Luna: Yeah, it's a small way to show appreciation, and it genuinely helps. Lucas: So back to direct private equity. One of the newer developments is that some family offices are now acting as lead investors in syndicated deals, bringing in other families and even institutional investors. That gives them more leverage in negotiating terms. Luna: So they're almost like mini general partners. Lucas: Exactly. And that can be very profitable. The lead investor typically gets a lower price, sometimes a discount of 10 to 20 percent, plus a preferential return. It's a way to get compensated for doing the work. Luna: I imagine that requires a lot of credibility and a track record. You can't just decide to be a lead investor overnight. Lucas: Absolutely. It's a reputation business. But once you have that reputation, it becomes a virtuous cycle. You get access to better deals, which attracts more co-investors, which strengthens your network. Luna: And what about the regulatory side? I know that in the US, if you have more than 100 investors in a pooled vehicle, you might trigger SEC registration. How do family office clubs handle that? Lucas: That's a great question. Most family office investment clubs structure themselves as private funds that rely on the exemption for accredited investors, usually under Rule 506 or 506 of Regulation D. They limit the number of investors to stay below the 100-investor threshold for certain fund types. And they typically require each family to be an accredited investor, which for a family office is almost always the case. But it's a legal area that requires careful advice. Luna: So what's the one piece of advice you'd give to a wealthy family considering this path? Lucas: Start small. Don't try to build a full in-house team immediately. Instead, do a few co-investments alongside an experienced partner, learn the ropes, and then gradually build your own capability. And never invest in something you don't fully understand. That sounds obvious, but it's the most common mistake. Luna: Good advice. And maybe also don't put all your eggs in one basket, even if you think you've found the next big thing. Lucas: Absolutely. Diversification matters even in direct private equity. So that's the landscape. Family offices are becoming mini private equity firms, and direct investing is a powerful tool for those who can afford the infrastructure and the risk. Luna: And for the rest of us, it's a fascinating window into how the top 0.1 percent manage their wealth.