When people outside the financial industry think about large investors, they often identify private equity, venture capital, the largest banks and other common institutions as fitting this mold though the rise of powerhouse family offices are increasingly playing a more significant role behind the scenes. This blog post touches on our experience guiding family offices around the world and the types of investments they often make.
First and foremost, it’s important to note that family offices like all sorts of other businesses/organizations aren’t created equal and each has their own set of goals based on a wide variety of factors ranging from where the family first made its money to where they’re headed in the future. For example, a tech billionaire may be more inclined to invest in tech-related startups, stocks, etc. whereas a family that built their wealth in real estate may gravitate towards that investment arena.
Secondly, family offices operate as asset allocators in the sense that they don’t typically invest in just one asset class but instead take a diversified approach to the allocation of their capital in order to effectively manage risk and maximize returns. The primary focus should be to allocate capital based on well specified investment criteria to the best most favorable undervalued investment opportunities that promise safety of principle and favorable risk adjusted returns.
Looking at the specific types of investments family offices commonly make, it’s really a broad spectrum that includes hedge funds, private equity, private credit, publicly traded stocks (e.g. S&P 500), bonds, commodity futures, real estate, venture capital (from startups to later stage companies), cash equivalents, and a plethora of other less common yet potentially highly profitable investments. As insiders with privileged access to the public and private markets, family offices are often presented with the best, most favorable investment opportunities first, well before other investors even have a chance. Opportunities others can only dream of.
After being active in the financial markets for decades both as investors ourselves and in guiding family offices, it is extremely important to always be open-minded to outside feedback and new ideas – we’ve seen family offices get stuck in their old ways while the world is rapidly evolving around them which doesn’t always lead to the best results. And that’s why family offices retain The Practical Contrarian as a boutique financial consulting and market research firm to uncover timely actionable insights using a data driven approach to help guide the wide range of potential market outcomes for securities of various asset classes.
Hopefully this post sheds more light on family offices and if you have any questions let’s connect!