Garnet Capital Advisors Blog

Family offices such as Perot Investments that operates out of the Perot family's Circle T Ranch are making their presence felt in the realm of buying loan portfolios and acquiring companies that originate loans.
Photo Credit: USASOC News Service via Flickr cc

Directly investing in companies or acquiring them altogether may be something that one would expect large firms or private-equity companies to be involved in. But an increasing number of wealthy families are dabbling in such business ventures and are making quite the splash on the scene.

While operating outside of traditional platforms, these so-called ‘family offices’ are still making their presence known. These ultra-wealthy families still diversify their investment portfolios with stocks, bonds, and other investment vehicles, but they are are increasingly making direct investments in companies or loan portfolios by either funding their expansion or outright buying them. Thanks to their padded wallets, thirst for investing with the big guns, and building businesses that they actually own, these families are able to do what was traditionally only done by traditional private equity firms.

How Do Family Offices Differ From Private Equity Groups and Venture Capitalists?

It’s important to understand how family offices work differently than typical private equity companies and large investment groups. Family offices invest their own capital rather than raising funds from institutions or pensions. They’re not considered funds, nor are they limited to working within a specific structure.

Family offices aren't restricted by dollars or holding period limits, and tend to hang on to businesses as long as they continue to be money-makers. They are also not expected to raise funds on a regular basis, unlike venture capitalists and private equity firms.

No Investment Type is Off Limits

While family offices may focus on certain industries, they typically do not limit themselves to just one niche if they believe an investment will be a lucrative one that will grow and keep the dividends rolling in. They’re getting together with buyout companies and engaging in acquisitions. They’re helping to finance start-up companies and purchasing loan portfolios. At the end of the day, family offices seek to grow their reach in investing in and owning businesses and will often hang onto these businesses for the long haul.

Despite their acquisitions, family offices tend to view such deals as more of a partnership considering the long-term relationships that develop. They’re usually heavily involved in the business immediately after a deal is made, then scale back to deal only with senior level personnel as they typically don’t have a staff large enough to dedicate to managing the companies on their own.

Acquisitions of companies are increasingly being made by the nation's wealthiest families who have the capital needed to grow their acquisitions.

More Companies Are Turning to Family Offices as Investment Vehicles 

Wealthy families in the U.S. have always been very good at safeguarding and growing their money, but they’re becoming increasingly sophisticated with their investments and turning them into lucrative business deals. Many companies are actually looking to family offices as opposed to traditional private equity and Wall Street money in an effort to curtail high fees and avoid potentially contentious ownership.

Families that have at least $250 million to invest are increasingly looking to the family office structure because of the control it affords as well as their ability to conduct covert operations. In addition, family offices are not subject to the same federal regulations if their investment advice is limited to descendants of a common ancestor within 10 generations.

The nation’s largest investment banks, including J.P. Morgan and Morgan Stanley, are continually focusing on wealthy families and even sending senior bankers to cover family offices. While it’s challenging to keep tabs on the number of family offices considering how secretive their operations tend to be, it’s estimated that there are about 3,000 family offices in the U.S. with over $1.2 trillion in assets.

Practicing Prudence by Partnering With Loan Sale Advisors  

These increasingly popular and expanding family offices are now buying loan portfolios and companies that originate or own loans. As such, it’s best to be vigilant by using a firm that knows the loan business of buying and/or selling assets before dealing with such unique entities.

Find out more about the loan sale advisory services of Garnet Capital - browse our white papers today.