Over the last decade, direct investing by family offices has increased dramatically, as chronicled by countless family office publications, private wealth advisory firms, and, most recently, Middle Market Growth. The November/December cover story features Michael Pucker of DNS Capital – husband of American billionaire, Hyatt Hotel heir and philanthropist, Gigi Pritzker.
Like DNS Capital, at enlight Advisors we’ve found the most successful family offices check all five of these boxes when it comes to direct investing:
▢ 1. Right Experience
The family office has the skills and the foundation to successfully embark on the endeavor.
“Prior to forming DNS Capital, [Pucker] worked with clients to build new businesses and acquire companies and helped them as a partner and adviser. “It’s basically a continuation of what I’ve been doing professionally for a long time,” he adds.”
▢ 2. Right Reasons
The family office pursues direct investments for the right reasons, beyond financial gains.
“The financial and cultural advantages of long-term investing appealed to the couple…Unlike many investors, DNS rarely views “alignment” through the lens of financial metrics. Instead, that term refers to culture, values and relationships.”
▢ 3. Right Strategy – The family office develops a direct investing approach that fits their needs.
For DNS, their desire to diversify drives a strategy of proactively identifying opportunities. “To bolster industry knowledge, every year each of the firm’s investment professionals chooses an area to research in-depth—fragrances and flavors is one recent example—and to expand the firm’s network of experts. “[This deep dive approach] forces us, in a positive way, to be proactive in the market,” [Head of Development Elizabeth] Hess says. “We won’t sit in the office and just wait for the phone to ring.””
▢ 4. Right Team – The family office assembles the right professionals and advisors to support its direct investing efforts.
“Pucker agrees that hiring the right team is essential. In addition to cultural fit, he looks for a strong financial background when building his staff, noting that the firm enlists the help of subject matter experts when needed.”
▢ 5. Right Discipline – The family office and its team are disciplined in the execution of the strategy. DNS Capital only completed 3% of deals they considered in 2017.
In upcoming blog posts, we’ll explore each of these topics in more detail to help you consider whether your family office is ready for direct investing.