Investment Strategy
The type of investment strategy a family office pursues is a function of sourcing capabilities, desired control, liquidity needs, investing experience, and family office infrastructure. Family office investment strategies generally fall in three broad categories: (i) third-party managed, (ii) public direct, and (iii) private direct. Often family offices use a mix of these strategies to diversify investment exposure and improve risk-adjusted returns.
This type of investing consists of family offices using asset management funds to invest their capital. Families can make high-level decisions around how to allocate their capital between industry sectors and asset classes at the fund selection level. Below fund selection level, however, they have limited influence over investment decisions.
This involves the family office making the decision to invest capital into a specific asset or security. This requires the family office to do its own research and due diligence in the investment process. The family office is also responsible for continuing to follow asset level performance and manage its portfolio of these assets on a day-to-day basis.
Investing is centered on liquid debt, equity securities and derivatives that trade over a public exchange. These investments are made through the use of public information and are subject to regulatory requirements that both protect and constrain the investor. Unless very large positions are accumulated, public direct investing provides very limited influence over the underlying asset’s management and strategic decisions.
This type of investing focuses on taking a more active role in the deal process and underlying investment. The family office will often be more involved in business decisions and strategy for the entity or asset. The investment can be structured as debt, equity, or as a specific asset purchase (e.g. real estate). Information can include both public and non-public items. Regulatory requirements are more looser, giving the investor greater access to information but more limited protection.
