Insights
By: Richard Hill
Increase in direct investments for family office clients – Richard Hill
Growing appeal for entrepreneurs and business-owning families
The amount of family office capital allocated to direct investments is growing all the time, according to Richard Hill, Partner – Private Markets Advisory.
“It’s a theme that we see borne out with our clients,” he told guests at an investor lunch at our Stellenbosch office in South Africa this month. “Although a number of them have low allocations to this area, we are seeing an increase in direct investments reflected in our business.”
Richard, who has over 20 years’ corporate finance advisory and direct investing experience, works with a team whose previous experience enables access to a wide range of deals. “Because of their broad background including both investment banking and direct investing, we get involved in a range of direct investment opportunities and special situations with our clients as well as bi-lateral corporate finance and M&A-type opportunities. With a focus outside the fund world, and specifically on supporting families and family offices, these are the sorts of private investment opportunities we are able to capture for our client base”.
Sector affinity is an attraction for many entrepreneurial investors
According to Richard, what drives this increased interest in direct investments among family office clients is not only the potential to access higher capital returns, something all private equity investing can offer. “One attraction of direct investments is their ability to act as a market diversifier, often uncorrelated to wider financial markets. Furthermore, for entrepreneurs who have built up a lot of experience in a given sector, direct investments offer a way of imparting that knowledge to the underlying investment companies. That is a big attraction for many.”
A direct investments platform built specifically for families
Despite increasing allocations to direct investments, few market providers cater specifically for family office clients, said Richard. “Much of the market is focused either on institutional or retail business. Generally, neither of those is quite the right fit for our clients. We focus everything we do on what we know of our client families, presenting them with opportunities that work for them rather than offshoots from some other strategy.”
Often, the main advantage we bring to our clients is access to our network of potential investee companies, advisers and other investors, explained Richard. “Rather than sitting on the other side of the table from us, our clients are invited into our network, investing alongside other families. It’s our job to facilitate that.”
The team works on a deal-by-deal basis, explained Richard, which provides investors with clarity around their investments. “As we have no discretionary capital, our clients make the decisions as to how much they want to invest, where and at what time. It provides a clear line of sight to a given individual investment: the risk, investment term, potential terms for underwriting the capital and so on. This level of visibility and certainty is something that appeals to our clients.”
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