1. Family offices are getting serious about private equity. They are steadily building their own buyout operations and making direct
investments in private companies, often competing with traditional private equity firms in the process.
Perhaps no family office better typifies this trend than the Pritzker Group, headed by Anthony Pritzker and J.B. Pritzker, brothers and
heirs to the Hyatt hotel chain fortune. The Pritzker Group has been investing family money directly into companies for 14 years, but
mostly on an informal basis. It wasn’t until 2012 that the Pritzker’s decided to truly focus their energies on private equity and staff up
their operations. They hired PE professional Paul Carbone, formerly of Robert W Baird’s private equity arm, to lead their PE efforts,
and added other industry experts from Blackstone and Equity Group Investments.
Since then, the family has acquired seven companies in just four years, including LBP Manufacturing, maker of the coffee cup sleeves
used to prevent Starbucks’ customers from burning their hands, and most recently PLZ Aeroscience, a manufacturer of aerosol cans.
The Pritzker Group is not alone. PitchBook, a research and data collection firm, reports a substantial increase in direct investments by
family offices. It recorded 97 such deals in the U.S. in the past five years, compared to 56 in the previous five. And these figures are
likely a fraction of the real total given that family offices tend not to share information about their transaction activity. What’s more,
a 2014 survey by McNally Capital, which helps wealthy families manage their investments, found that 77% of families preferred direct
investments into companies rather than into private equity funds. That’s up from 59% in 2010. The McNally study also found that, in
2014, 37% of family offices had at least three people in their office specifically dedicated to making direct investments, up from just
22% in 2010.
The Benefits of Direct Investing
There are several reasons why family offices are making more direct investments, rather than just investing in a private equity firm as a
limited partner. The most obvious is that family offices are increasingly looking for ways to avoid the high fees associated with outside
investors, such as a 2% management fee and 20% of profits, or carry.
This sentiment is summed up by Noam Abrams, Vice President of Private Equity at the Vinik Family
Office, which is headed by Jeff Vinik, owner of the Tampa Bay Lightning hockey team. “We like
to know where our money is going,” Abrams told RIABiz, a news site for the advisory community.
“Why pay a substantial management fee and carry for something that you don’t know? We
believe that we can get better alignment doing one-off deals.”
Another reason is transparency. “Families are getting away from black box investing, where they
give their money to a private equity firm as a traditional limited partner and let them do as they
please,” said Steven Thayer, a partner at Handler Thayer LLP, which provides legal services to
family offices. “After the Great Recession of 2008, people really started paying attention to what
was going on inside that black box. Family offices didn’t want to cross their fingers and hope that
the outside investors were making the right investments. They really wanted more control over the
investments that were being made.”
Going Toe-to-Toe with PE Firms
Competition for private equity transactions from non-traditional players like family offices is clearly
on the rise. As family offices grow in size and power, they are searching for new opportunities that
can earn ever-higher returns.
“Given the growing wealth of these family offices, we expect to see increased competition for
private equity deals in 2016,” said Jeremy Swan, National Director of CohnReznick’s Private Equity
and Venture Capital Industry Practice. “We are seeing multigenerational family offices that have
grown their portfolios and want to explore new opportunities. They are going down the path of
bringing managers on board who are deal people.”
Family Offices Play Powerful New Role in Private Equity
Forward Thinking Thought Leadership
PRIVATE EQUITY INSIGHTS
We are seeing
multigenerational
family offices that
have grown their
portfolios and want
to explore new
opportunities. They
are going down the
path of bringing
managers on board
who are deal people.”
— Jeremy Swan
National Director of
CohnReznick’s Private Equity
and Venture Capital
Industry Practice
“
- 1 -

2. Look at the Reinmann family, which recently acquired Keurig Green Mountain, maker of home and office coffee brewing systems, for
$13.9 billion. The deal caught many by surprise, as did the price tag, which was a 78% premium over where the company had traded.
This family has amassed a consumer products empire that includes such brands as Jimmy Choo shoes, Durex condoms, and Peet’s
Coffee & Tea.
Direct Investing Does Not Always Make Sense
But not every family office has the resources, expertise, and acumen of a Quilvest, Pritzker,
or Reinmann. And not every family can successfully execute a direct investment strategy.
“Family offices need to ask themselves about the advantages they have that will allow them to
compete with a PE firm that is also hunting for good deals,” said Thayer. “How are they going
to be better than a PE firm? If you were trying to get others to invest in your family office, would
you be able to tell a story that makes sense and that outside investors could get behind? If
there is no good reason to do it, maybe you shouldn’t be doing it with your own money.”
Francois de Visscher agrees wholeheartedly. The founder of de Visscher and Co. LLC, an
independent financial advisor to single-family offices, he is also a director and shareholder
of his own family’s $6 billion global enterprise, N.V. Bekaert S.A. “Family offices should not
engage in direct investments just because everyone else is doing it. Before they do their
first direct deal, they need to take a step back and create a coherent strategy,” advised
de Visscher. “What kind of returns are they looking for? Which megatrends do they want to
be exposed to? Are they trying to develop a legacy business for the next generation? Are
they looking for a job-creation vehicle for younger family members? This all needs to be
codified in a formal investment policy statement.”
Experts like de Visscher and Thayer believe that direct investments do make sense when the family office has a defined strategy or
mission that it truly believes in, such as supporting socially responsible companies or investing in renewable energy. It also makes sense
when the family office has unique expertise and insights in a particular industry—typically the industry where the family amassed its
wealth in the first place.
“Family offices are well-served to look for deals in a particular industry where they can put their expertise to work,” added Swan.
“This expertise can also give them an edge in deal origination that a PE firm might not have, given their knowledge, experience,
and networks in a given industry.”
Appeal to Business Owners
Another big advantage for family offices competing for deals is their natural appeal to business owners. Rightly or wrongly, many
business owners have an outdated opinion of private equity as corporate raiders intent on maximizing returns through financial
engineering. By contrast, “They see family offices as real people they can touch and feel, which is not always the case with a
PE firm,” said Thayer.
PE firms, for their part, are beholden to their investors who demand to see a return on their investments within a set time period. Private
equity firms have about three to five years to put that money to work, a handful of years to grow the businesses, and a fixed period of
time in which to exit those investments so they can raise their next fund. The family office, however, is a different model. Family offices
can provide longer term capital and there are no limitations as to how long they can hold onto their investments. In this market, that
is a very attractive selling point.
It is also the narrative that family offices like the Pritzker Group has been hammering home recently to business owners looking for capital.
“Today, more sellers widely understand that they have choices beyond private equity,” J.B. Pritzker recently told Crain’s Chicago
Business: “You don’t have to sell to the five-year owner who’s going to flip your company sooner than you think it ought to be flipped.”
Another big advantage is that family run enterprises are eager to partner with family offices because they share many commonalities
in their approach to business. “Having an investor that understands family governance and how families operate within a business
context can go a long way to contributing to the future success of the business,” said de Visscher. “Additionally, family offices bring
a permanency of capital to the table. They are not bound by certain structure or firms to exit an investment quickly. That is basically
a dream come true for a family run business looking for capital.”
Family offices should
not engage in direct
investments just
because everyone
else is doing it.
Before they do their
first direct deal, they
need to take a step
back and create a
coherent strategy.”
— Francois de Visscher
Founder of Visscher and Co. LLC
and Director of N.V. Bekaert S.A.
“
- 2 -

3. Co-investments on the Rise
It is important to remember that families participating in direct investments generally haven’t abandoned private equity funds
altogether. Indeed, quite the opposite is true. Family offices account for 9% of all capital invested in private equity funds last year,
compared with 4% in 2010, according to research firm Preqin. That’s probably because family offices are richer than ever. Single-
family offices hold about $1.2 trillion in assets and multi-family ones manage about $500 billion, according to the consulting firm
Family Wealth Alliance.
Family offices are also partnering with PE firm in what are known as co-investments. This is where a family office associates with a PE
firm on a deal-by-deal basis, essentially picking and choosing which investments it wants to participate in rather than handing over a
blank check to the PE firm. Co-investing is a growing phenomenon. A 2014 UBS and Campden Wealth family office report found that
about 80% of family offices had participated in co-investing.
Many family offices see co-investing as a win-win, because they get to invest directly in deals alongside a PE firm and, at the same
time, do not have to pay any extra fees to the PE firm. They also don’t have to hunt for the deals themselves, which often entails
raising their profile in the marketplace, which many family offices are loathe to do.
“Family offices typically like to fly under the radar. But for deal origination, they need to expose themselves a bit more, which can
be a challenge,” said Thayer. “But, with a co-investment, they can pair up with the PE firm and get the benefit of the firm’s deal flow
while still keeping their anonymity. That’s because it’s the PE firm out there in the market drumming up deals and doing the diligence
to get it to the finish line. That’s a good model that satisfies family offices, which don’t want to be out there rummaging for deals and
being solicited by the masses.”
The bottom line is that family offices represent an increasingly important source of capital for private companies in the market. “From
a seller’s perspective, family offices are another avenue they may not have thought of before,” said Swan. “For some businesses,
there are real advantages to working with a family office rather than a PE firm.”
He adds that, as more family offices take on the challenges and responsibilities they once entrusted to private equity firms, they need
to adopt many of the strategies that CohnReznick advises for private equity firms. “Family offices need to conduct the proper due
diligence, strive for operational efficiencies, and better manage risk by adopting programs such as cybersecurity best practices,”
said Swan. “That is how they can ensure success and maximize the value of their investments.”
Contact
For more information on our services for family offices, please contact:
Jeremy Swan, Principal, Private Equity and Venture Capital Industry Practice National Director
646-625-5716 or jeremy.swan@cohnreznick.com
John Bova, Client Relationship Executive, Private Equity and Venture Capital Industry Practice
646-601-7798 or john.bova@cohnreznick.com
May 2016
About CohnReznick
CohnReznick LLP is one of the top accounting, tax, and advisory firms in the United States, combining the resources and technical expertise
of a national firm with the hands-on, entrepreneurial approach that today’s dynamic business environment demands. Headquartered in
New York, NY, and with offices nationwide, CohnReznick serves a large number of diverse industries and offers specialized services for middle
market and Fortune 1000 companies, private equity and financial services firms, government contractors, government agencies, and
not-for-profit organizations. The Firm, with origins dating back to 1919, has more than 2,700 employees including nearly 300 partners and
is a member of Nexia International, a global network of independent accountancy, tax, and business advisors. For more information, visit
www.cohnreznick.com.
© 2016 CohnReznick LLP
This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information
contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness
of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the
consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
- 3 -
cohnreznick.com