Direct Investing & Co-Investment Through a Multifamily Office

Direct investing means a family or its office takes an ownership position in a private operating company or asset itself, rather than buying an interest in a diversified fund. The investor typically negotiates terms, performs or oversees diligence, and monitors the holding over time.

Co-investment is an opportunity to invest alongside a sponsor, such as a private equity or real estate manager, in a specific transaction, usually in addition to a fund commitment. Club deals are a related format in which a small group of investors pools capital to pursue one transaction together.

These approaches differ from fund investing in concentration, control and responsibility. Selection, documentation, liquidity and follow-on decisions rest more heavily with the investor, which is why process discipline tends to matter as much as the opportunity itself.

Historically, large families with operating-business backgrounds led direct investing, often drawing on their own industry networks and judgment. Deal flow commonly arrived through personal relationships, advisors, bankers and other families.

Co-investment has traditionally followed from existing sponsor relationships. Sponsors may offer allocations to select investors, and those investors usually need to evaluate timing, terms and documents on a compressed schedule.

Single-family offices have often built in-house teams for this work, while others rely on outside advisors, consortiums or fund structures. Each model involves different tradeoffs in cost, control, speed, conflicts of interest and depth of expertise.

The right multi-family office may help a family clarify why it wants direct exposure, how much concentration and illiquidity it can tolerate, and how such holdings fit alongside the rest of its balance sheet. It may also help draft an investment policy that sets decision rights, review steps and reporting expectations.

In a first conversation, an MFO may explain how it sources opportunities, how it evaluates sponsors, and how it handles conflicts when it also has relationships with managers. It may describe its diligence approach, coordination with a family's attorneys and tax professionals, and how it monitors positions after closing.

Useful questions include: Is the firm independent, and how is it compensated? Who performs diligence and who makes the final decision? How are allocations shared among clients? What happens after closing? What experience does the team have with exits? Families should rely on their own licensed advisors for final decisions.