Direct Investing Strategies for Family Offices: Moving Beyond Mega-Funds
Introduction
In today’s increasingly complex and competitive investment landscape, family offices are re-evaluating traditional asset allocation models. A key theme that emerged from the IVYFON 2-Day Family Office Forum in Miami is the decisive shift away from mega-fund commitments and into more nimble, direct investment strategies.
Family offices are not just capital providers — they are becoming active participants in sourcing, structuring, and scaling private investments. This evolution is driven by a desire for greater control, improved returns, enhanced alignment with mission-driven goals, and the need to navigate liquidity constraints across the private markets.
Why Family Offices Are Reconsidering Mega-Funds
For years, large private equity and venture capital funds dominated the family office investment playbook. These vehicles offered access to top-tier deals and institutional credibility. However, recent challenges — including reduced distributions, delayed exits, capital overhangs, and fee inefficiencies — are forcing investors to rethink their strategies.
At the Miami Forum, multiple speakers echoed the sentiment that many top-performing funds are over-allocated and constrained, while small-to-mid-sized opportunities remain undercapitalized and ripe for value creation.
The Strategic Case for Direct Investing
Direct investing refers to family offices investing capital directly into private companies or assets, bypassing traditional fund structures. This strategy offers a host of advantages:
1. Superior Return Potential
Participants highlighted a trend toward $20M–$50M deal sizes, often overlooked by large funds. These “mid-market” opportunities are achieving target internal rates of return (IRRs) in the range of 15% to 22%, with lower competitive pressure and higher alpha potential.
2. Increased Control and Transparency
Direct deals allow family offices to perform their own due diligence, negotiate terms, and often take governance roles. This creates clearer visibility into performance drivers, risk factors, and exit pathways.
3. Fee Efficiency
Unlike the typical 2/20 model seen in traditional funds, direct investments can drastically reduce fee drag. Capital is deployed more effectively without multiple layers of management and performance fees.
4. Strategic and Thematic Alignment
Family offices can align investments with legacy values or strategic themes — such as climate tech, artificial intelligence, embedded finance, or impact investing. This alignment strengthens mission cohesion across generations.
Practical Steps to Build a Direct Investment Program
A. Focus on Core Competency Areas
Invest where your team (or trusted advisors) has sector expertise — this could be healthcare, real estate, fintech, clean energy, or consumer goods. Direct investing favors deep vertical knowledge over broad diversification.
B. Develop a Co-Investment Ecosystem
Several speakers emphasized the value of co-investing alongside experienced fund managers or syndicates. These relationships offer vetted deal flow, shared due diligence, and risk sharing without full exposure to fund economics.
C. Institutionalize Diligence and Governance
Building a robust internal framework for sourcing, evaluating, and monitoring deals is essential. This includes assessing team quality, founder history, capital efficiency, and long-term scalability.
D. Explore Secondaries and Continuation Funds
Continuation vehicles and secondary investments provide liquidity, shorter durations, and de-risked access to assets with proven track records. These are ideal for family offices transitioning into more sophisticated private markets participation.
Sal Buscemi, Co-Founder & Managing Partner, Brahmin Partners, noted that “mid-market real estate and operating companies in Texas are offering superior yields compared to larger institutional vehicles.”
Russell Deakin, Founder and CIO of Aceana Group (SFO) shared that “early venture bets on AI platforms opened doors to co-investments at the growth stage — with significantly better valuation entry points.”
Challenges and Mitigation Strategies
While direct investing offers compelling upside, it is not without risk. Limited sourcing channels, concentration risk, and operational complexity can undermine performance. To mitigate these:
Build or rent expertise through partnerships and advisory relationships.
Use phased capital deployment and milestone-based tranches.
Consider club deals to diversify within a single theme or vertical.
Conclusion: The Future is Direct
The message from the IVYFON Forum is clear: family offices that wish to remain agile, opportunistic, and resilient must look beyond mega-funds. Direct investing — when executed with discipline and purpose — can unlock superior performance, strategic alignment, and legacy continuity.
As capital becomes more intentional and outcomes more scrutinized, the future of wealth management lies in taking smart, targeted ownership positions — and in doing so, transforming from passive capital allocators to engaged capital builders.
