Throughout time, direct ownership of operating companies has remained the single greatest driver of wealth creation and wealth preservation worldwide. Not surprisingly, since the Great Recession, business owning families and single family offices have increasingly turned to direct investments to grow their wealth. According to Wharton Global Family Alliance, Single Family Offices have nearly doubled their allocation to Direct Investments from 6 % in 2008 to 11% in 2012.
Of course, business owning families and family businesses have long been exposed to direct investments by the mere ownership of their family business. Many single family offices made their wealth owning and growing family businesses but until recently had adopted a more institutional approach of seeking various forms of indirect and alternative investments.
The renewed interest in direct investments by business owning families and single family offices is the result of many factors including lack luster returns, high fees and increased regulations in the institutional market place. Probably, the most important factor fueling the direct investment movement among families is the desire to invest trans-generationally and tailor their investments to the specific governance, tax and structural needs of the family owners.
However, implementing a successful direct investment strategy can be challenging. Many single family offices and even business owning families have (unfortunately) experienced the pitfalls of direct investments, resulting in unsuccessful investments, family disputes and erosion of the Total Wealth of the family.
The most important pre-requisites for a successful direct investment strategy include:
- A solid family governance structure
- An effective liquidity program for the owners
- A capital strategy supported by effective financial structuring
- A deal flow to access investment opportunities
- An ability to investigate and analyze investments opportunities (due diligence)
- An access to like-minded and compatible partners, including other single family offices
- A capacity to monitor the investments in the future
Resources and capabilities required above are not always accessible to single family offices and business owning families. Drawing upon 25 years of experience advising business owning families and single family offices, de Visscher & Co. has expanded its financial advisory capabilities by forming a new platform of Direct Investment Advisory Services to assist its clients in making direct investments or better manage their existing family business.
CLICK HERE for a short outline of the capabilities and the value-added of our Direct Investments Advisory Services. Please feel free to reach out to us if we can be of service to your single family office or family business in designing and implementing your direct investment strategy.