How to attract Family Office capital

[Published on March 28th 2023]

Each family office is unique and you can get better economics from a Family office compared to PE. In this video, Azhar Quader, Investor, Queens Court Capital Management and Kevin M. Meyers, Managing Partner, First Haven Capital discuss how to successfully create a long-term partnership with Family Offices.

Finding the right family networks and resources

Both Azhar and Kevin agree that family offices have different investment strategies and that there is no one-size-fits-all approach to raising capital from them. Kevin suggests that one of the key points that attracts family offices to independent sponsors is that there is no such thing as an overstaffed family office. If you're looking for deals and you don't have a big team, the best way is to partner with folks who are really good at it. 

Azhar’s firm, Queen’s Court Capital has invested $100 million in the last few years across just under ten platforms. Almost all of the capital has come from family offices. He states that family offices have different strategies and there has been a big rush in the last 5 - 10 years for family offices to go direct and have exposure to deals. There are also passive family offices that can move quickly, but can be a nuisance in subsequent years. Institutional quality family offices that give private equity firm economics and are more of a one-stop solution.

It's essential for family offices to understand the questions and background of families to ensure a good fit, as some may pull out of deals for reasons that could have been addressed at the beginning. To find the right families, there are different groups like Metcircle, Family Office Exchange, and Fidelity Family Office Organization that could provide access to different family networks. Networking with other family offices can also help in finding the right groups and resources that they may bring to bear.

Selecting the right investors

Existing investors anchored purchase of debt, but additional capital needed for debtors in possession loan and working capital. Raised capital through referrals from families, resulting in $70 million in cost reductions and profitability. Dividend recap returned 107% of investors' money. These examples demonstrate the importance of having the right network and relationships to access capital.

When selecting investors, the sponsor should consider their desired level of control and governance. Smaller checks have better economics but come with a hassle factor. Consider using brokers or additional help to drive better fees, but larger, more sophisticated investors may push for more governance.

Family offices can be categorized as either in the MOIC business or in the wealth preservation business. QSBS (Qualified Small Business Stock) designation Section Twelve can be very tax advantageous for private investors in independent sponsor deals. Where the family office has sourced their wealth can be an indicator of the types of deals they prefer to do, whether they do small or big checks.

Finally, family offices tend to be more steady with their investment activity, and they don't have a rigid asset allocation or way of thinking about where their pockets are. Retired executives and private equity partners are also good partners due to their operating view and access to capital.

Final Thoughts

In conclusion, independent sponsors and capital providers need to be aware of the changing dynamics of the family office and high net worth investor landscape. To be successful, they need to have a clear message and understanding of value creation, network effectively, and select investors with the right level of control and governance. With the right approach, there are ample opportunities to access capital and create value for investors.

 

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