If you are a family office looking to invest money in order to make money - as opposed to preserving wealth - where do you put it? The markets are looking toppy, to say the least. Rates remain low. Hedge funds are hardly setting the world alight.
Private equity? The good thing about PE is that it involves investing in real businesses. But things are a little dismal there too. Even though there was an M&A boom last year, just 6% of deals were done by private equity.
Funds are sitting on $1.34 billion of dry powder. Family offices tend to be worried about the amount of time their money will be locked up, and knowing that there is $1.34 billion in the queue already is uninspiring.
So, for many reasons direct deals remain the preferred option for family offices. The issue is this: how do you find them?
The perennial problem for most family offices is that they don’t have enough people to do the legwork to find them, or to do the due-diligence once they have. Which is one reason why family offices tend to stay in the geography and sector they understand, leaving them dangerously under-diversified.
Technology is coming to the rescue. This month a new matchmaking service for families will launch, called Owners Place.
It is the brainchild of Jan Olszewski - a second-generation member of the Polish family which runs Solaris, a company which makes and exports buses and coaches - and the idea is that families from all over the world can join and offer deals to other families.
“I never met a family who said there are too many good deals,” says Olszewski. “The problem is that families get a lot of offers, but they are often not good. Everyone contacts them because they are well-known.” The solution? Create a closed group where the only members are families: there are no advisers or consultants on the platform.
The idea was inspired by Olszewski’s family’s own experience. When they wanted to expand into the Middle East, they entered into a joint venture with Dubai’s Al Ghurair family, who they met through a sales manager from Denmark who happened to have a contact.
It worked well, says Olszewski, but he realises they were lucky. Other families might like to have more choices of partner, or to go into geographies where they have no contacts.
So far 92 families from 29 countries have signed up to Owners Place, and the idea is that families get access to opportunities all over the world. “Families are often interested in, say, start-ups in India or real estate opportunities, but they normally do not have the contacts or people they can trust,” says Olszewski.
Another problem with direct deals is due diligence. “If they know that an family is investing, they know it is proven because the other family wouldn’t be involved otherwise,” says Olszewski. “The family involvement is like a small guarantee. Families like families.” Plus, professional services firm EY are involved with Owners Place, and will check out families who want to join.
Among the deals already on the site are an opportunity to co-invest with a Middle Eastern family looking to grow its frankincense business for up to $10m, and a Polish building materials maker looking for $10-100m to expand into Africa.
Olszewski is not the only person to see the potential for technology to put families together. Publishing company Euromoney launched the Family Office Network a couple of years ago. (One of Business Family’s supporters, the Termes Partnership, also suggested something similar.)
Do these platforms mean a golden age for direct deals? We’ll see. But hedge funds and PE houses looking for family office money will certainly have to work even harder for family money in future.
© Business Family