Why family offices choose private equity & venture capital
Table of Contents
LEARN WHY FAMILY OFFICES CHOOSE VC & PE
WHY INVEST IN PRIVATE EQUITY & VENTURE CAPITAL?
CHALLENGES FACING FAMILY OFFICES IN PE AND VC
ACCESS TO PREMIER REAL ESTATE INVESTMENT OPPORTUNITIES FOR ACCREDITED INVESTORS: MULTIFAMILY SYNDICATION
WORK WITH BAM CAPITAL FOR AN AWARD-WINNING MULTIFAMILY REAL ESTATE TEAM
LEARN WHY FAMILY OFFICES CHOOSE VC & PE
Family offices have long played a significant role in private equity (PE) and venture capital (VC). These private wealth management advisory firms are known for their ability to allocate capital into a variety of asset classes to help high-net-worth individuals (HNWIs) and families grow their wealth. These entities invest in different assets to achieve this goal, including direct investments, hedge funds, and real estate.
However, as the landscape of private investing evolves, family offices increasingly consider PE and VC funds attractive vehicles for wealth preservation, growth, and diversification.
As the number of family offices rises steadily globally, it is worth looking into their investment habits and how these could impact HNWIs. [1]
Here, we will explore why family offices invest in private equity and venture capital and the challenges they typically face while employing these strategies.
WHY INVEST IN PRIVATE EQUITY & VENTURE CAPITAL?
Private equity is frequently confused with venture capital since it is a firm that invests in companies and exits by selling its investments in equity financing. While both are forms of investment in companies, they differ significantly in their approach, target companies, and stages of investment. [2]
Private equity or PE refers to investment funds that acquire company ownership through equity and debt. These firms typically target mature companies that are either underperforming or undervalued, intending to restructure or optimize their operations to increase profitability. [2]
Private equity investors often take a controlling interest in a company, allowing it to implement significant changes, such as management overhauls, cost-cutting measures, or strategic shifts. After enhancing the company’s value, PE firms generally seek to sell it at a profit, either through a sale to another company, a public offering, or a secondary buyout.
On the other hand, venture capital or VC focuses on early-stage companies, often in high-growth industries like technology or biotechnology.
Venture capitalists fund startups or young companies that show potential for significant growth but are too risky to secure traditional bank loans. Unlike private equity, venture capital investments typically involve smaller stakes in the companies, and the investors usually take on an advisory role rather than a controlling one.
The goal is to support the company’s growth, often over multiple rounds of financing, with the expectation of a high return when the company matures, scales, or is acquired. Investors providing funds are gambling that the new company will be able to deliver. While risky, the tradeoff potentially results in above-average returns. [2]
Venture capitalists often exit their investments by selling their shares during an initial public offering (IPO) or when a larger entity buys the company.
Private equity and venture capital investments offer family offices several compelling advantages:
POTENTIAL FOR HIGH RETURNS
Investing in private equity and venture capital offers the potential for high returns and can be a significant attraction for many investors.
Private equity and venture capital can yield outsized gains by tapping into innovative startups or turning around underperforming businesses. These investments can be unlike public markets, where returns are often more modest and correlate with broader economic trends. [3]
The returns from these investments often come from successful exit strategies, such as a public offering or acquisition, where the company’s value may have increased significantly since the initial investment.
Additionally, PE and VC investments are typically long-term, allowing investors to benefit from compounding growth and the strategic development of the companies they are involved in.
That said, these high returns come with higher risks. Investors should be aware that many startups and turnaround projects fail, so experienced investors who can afford to take on this level of risk often participate in these asset classes. [3]
DIVERSIFICATION
PE and VC funds provide family offices with diversification benefits, allowing them to spread risk across different industries, geographies, and stages of company development. [3]
These asset classes typically offer exposure to high-growth companies and innovative startups unavailable in the public markets. Because private equity and venture capital investments are often less correlated with traditional assets like stocks and bonds, they can help reduce overall portfolio risk while potentially enhancing returns.
These investments also allow access to sectors or emerging industries that might otherwise be inaccessible. Wealthy families may be able to capture value from early-stage businesses with significant growth potential. This is something family offices often want to capitalize on.
Diversifying across different business cycle stages and market segments can usually improve long-term portfolio resilience and performance.
DIRECT INVOLVEMENT
Many family offices prefer a hands-on approach to investing. Investing in private equity and venture capital is perfect because they offer the unique advantage of direct involvement in the businesses and projects you support. [3]
Private equity and venture capital investments often provide a closer connection to the operations and strategic decisions of the portfolio companies, unlike traditional investments in public markets, where you may only interact with a company through its stock performance.
This direct involvement can be advantageous, allowing investors to contribute to the business’s growth and success actively.
Additionally, it offers the opportunity to leverage personal expertise and networks to drive value, influence critical decisions, and potentially achieve higher returns. This hands-on approach allows the family office to align the investors’ interests closely with those of the companies they invest in.
CHALLENGES FACING FAMILY OFFICES IN PE AND VC
While private equity and venture capital offer significant advantages for family offices, they also come with challenges.
One such challenge is illiquidity. Private equity and venture capital investments are not easily liquidated, which can be a drawback if the family suddenly needs access to their funds. This may not align with the short-term liquidity needs of family members. [4]
Managing conflicts of interest is also challenging, as family members may have differing views on risk appetite and investment strategies. Balancing the desire for high returns with the need to preserve wealth across generations complicates decision-making.
PE and VC investments also require specialized knowledge. If the family office does not have the expertise for it, they may have to hire skilled professionals. [4]
Finally, staying ahead of market trends and regulatory changes in the private equity and venture capital landscape adds another layer of complexity, requiring family offices to adapt and evolve their investment approaches.
ACCESS TO PREMIER REAL ESTATE INVESTMENT OPPORTUNITIES FOR ACCREDITED INVESTORS: MULTIFAMILY SYNDICATION
Family offices are increasingly important in the private equity and venture capital landscape. With their knowledge, they are well-positioned to capitalize on the opportunities in these asset classes.
However, PE and VC are not the only investments family offices tend to recommend for HNWIs. As most investors may know, real estate is another great addition to any investment portfolio. Real estate can offer stability and growth potential, making it a critical component of family office investment strategies.
For wealthy families, syndication is one way to invest in real estate. A syndication deal is when multiple investors pool funds to buy a single real estate property. This deal can be done with any type of real estate, but multifamily syndication is popular among high-net-worth individuals and accredited investors. [5]
Multifamily real estate properties such as apartment communities and condominiums are typically associated with solid and consistent cash flow, thanks to their multiple units and residents. However, they are also more expensive and challenging for a lone investor to acquire. There is also the property management problem: these large real estate properties are complicated to manage if you have no landlord experience.
Multifamily syndication solves these problems.
A syndication deal is arranged by the owner/operator, a sponsor, who serves as the general partner (GP). They are the ones to put the syndication deal together, creating and executing the business plan. The GP is the one who locates the investment property, conducts due diligence, secures the loan, and finds investors who will participate in the syndication. [5]
Meanwhile, investors are the limited partners (LP) in the deal. They provide a portion of the capital needed to acquire the property in exchange for a share of its monthly cash flow. Depending on the deal structure, investors may also earn a share of the equity upon resale. Every deal is different, so you must still conduct your due diligence before participating in a syndication deal. The private placement memorandum (PPM) or syndication agreement should detail the profit split. [5]
Syndication can be a much safer way to invest in large real estate properties because multiple investors pool their resources. It also makes these properties more accessible. And because the owner/operator handles everything from start to finish, investors do not have to worry about anything.
Owner/Operators handle the day-to-day operations of the investment property. They are responsible for managing the residents, repairing and renovating, handling emergencies, collecting rent, etc. This allows investors to enjoy all the benefits of owning a real estate property without the headaches of being a landlord.
Whether investing in commercial or residential properties, family offices approach real estate with a long-term strategy that aligns with their broader goals of wealth preservation and generational legacy.
WORK WITH BAM CAPITAL FOR AN AWARD-WINNING MULTIFAMILY REAL ESTATE TEAM
Multifamily syndication is believed to be a true passive investment in real estate. This can be an ideal choice for wealthy families because most deals are exclusive to accredited investors.
This is because even multifamily syndication has its share of risks. Just like other real estate investments, multifamily syndication struggles with illiquidity. These deals last for several years, meaning investors must be comfortable with not having access to their funds for a significant period. [5]
Accredited investors have the financial sophistication and investing knowledge to assess these deals properly. Their net worth and annual income can be a financial safety net if a deal fails. This is why the U.S. Securities and Exchange Commission (SEC) allows accredited investors to participate in unregistered securities and investment opportunities unavailable to the public.
For family offices and accredited investors who wish to work with a trustworthy owner/operator, it is recommended that you work with BAM Capital.
Choosing an owner/operator with a track record for excellence is essential because they will make all the investment property decisions. Accredited investors trust BAM Capital because this Indianapolis-based sponsor uses an award-winning investment strategy that creates forced appreciation while mitigating investor risk. [6]
BAM Capital prioritizes institutional-quality multifamily real estate properties that are Class A, particularly those with in-place cash flow and proven upside potential. Today, BAM Capital has over $1.2 billion in AUM and ~6,500 apartment units. [6]
As a vertically integrated company, BAM Capital can add value and guide investors through every step of the syndication process, from acquiring the property to managing it.
No investment is without risk. Before making financial decisions, consult your investment advisor or speak to a BAM Capital investment team member.
Schedule a call with BAM Capital and invest today if you are an accredited investor who wants to enjoy passive income and all the other benefits of being in multifamily syndication.
Sources:
[3]: https://www.ocorian.com/insights/what-private-capital-and-why-it-so-attractive-family-offices
[4]: https://aleta.io/knowledge-hub/family-office-private-equity
[5]: https://multifamilyrefinance.com/apartment-investing-blog/multifamily-syndication#important
