Family Office Private Equity

7hr0wbak's picture
Rank: Senior Baboon | 213

Wanted to get the community thoughts about family office PE firms in general and my situation.

A little background - this is for a junior level position, I am currently working in the credit arm of a large PE firm (think Sankaty of Bain, Thoma Bravo's credit arm, Whitehorse Capital of HIG, etc.) on the East Coast.

This is a newly-formed family office (can't disclose who the family is specifically but they are very well known) located in a less than desirable area of the States (think Kansas, Wisconsin, Minnesota, etc.) with a super flexible mandate but mostly focused on PE transactions. Have been told pay will be competitive with a NY/SF/etc. and the family office is eager to prove themselves and plan to do a lot of deals.

Is the social suicide in a less than desirable area worth the move here? Would the potential connections per the family be worth it? Thanks all for any thoughts.

Comments (33)

May 26, 2018

bump

May 30, 2018

anyone have thoughts?

May 30, 2018

I think it might be a good move if it's your only option to get actual principal investing experience (and thats what you would like to do LT). Given how competitive PE is these days, idk how well family offices are faring. In particular, a newly-formed family office might have a hard time getting strong deal flow. I imagine that getting into a more traditional LBO shop post MBA would be possible with prior investing experience from the family office but it might take longer than you care to stay for you to actually get that experience. In fact you might have more decent exposure in you're current role even though its on the credit side. It really depends on your sense for how "eager" the office is to do deals (i.e. probably overpay for shit).

    • 5
May 30, 2018

If you do not have family or social ties in the area, don't do it.

May 31, 2018

Lifes too short to live in a shithole, the hiring market is hot these days with the amount of capital that has been raised. It shouldn't be tough to find a decent pre-mba gig assuming you are competent and interview well (seems like you have solid pedigree given the description above). I wouldn't make the move personally, but guess it comes down to whats important to you.

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May 31, 2018

I had an opportunity like this come up a little more than a year ago and I took the first call. It was for a Corp Dev/Family Office role for a extremely prominent name in the US. Role was to do some family office PE investments ranging from startups to buyouts as well as Corp Dev type work for the families conglomerate holdings.

The location was non major city and would have paid less, but with the cost of living, I could have lived like a king.

I decided not to move on after the first call as I decided it wasn't worth it, but it got me thinking about what it would take me to move for an opportunity like that. For me here were the random collection of things I thought about after taking the call.

  1. Super unique opportunity that would provide significant financial benefit as well as career benefit. For example, if you could move from your current firm to this new family office and skip a level while making an equal amount of money(maybe even with some quasi carry type incentive) then that would be worth it. If you're simply lateraling as an Associate, probably less worth it.
  2. You have to be at a point in your life where you're kind of ready to settle down. I'm not a major city or bust kind of guy, but I do enjoy the perks of living in a major city in my 20s. I have a good group of friends and take advantage of the social aspects of being in a city. Some people do NY for two years and would be happy to move to a quieter lower COL space. If you have a significant other the move will be way easier. I had a buddy who was a few years older than me, found a startup PE/VC shop in the midwest, made the move, and now he has a 5 bedroom house, 2 dogs, 1 kid, makes a good salary and could pay his house off in under 10 years if he wanted. If I made the same move, I'd be lonely and would have to actively look to make friends.
  3. Ties into 2, but figure out what your long term goal is. If the goal is to make it back to NYC/SF/LA etc, probably not worth the move. If you could see yourself settling at this fund forever, given things go well, maybe its more worth it.
  4. Have an exit plan. If this role is truly unique, maybe its worth spending 2 years to see if you can get on partner track and if not, apply to business school and plan on doing that. I'd think about exit options though, bc if the fund goes under or the family decides to defund the family office, you'll be in a weak position to get back into the PE game with a no name family office on your resume that went under.
    • 7
May 31, 2018

To echo what others have said, if it's you're only path, then it could make sense but have an exit strategy. Living in the middle of nowhere is rough though if you aren't from there and/or aren't married with kids.

Some other things to think about from my experience:
1)At family offices nepotism can run rampant. You may have to answer to people who have no PE background but have the right last name. This can be very frustrating and will also hurt your chances of advancement and development.

2)You'll likely have to navigate personal relationships of the family in addition to the normal complications of a deal. I've done this and hated it. If a seller or partner company isn't delivering, I don't like weighing how to respond against the fact that they're golf buddies with a partner. You can get into no win situations or just be left out of certain things because they go straight to the partner.

3)If the main family members don't have a business background, you can sometimes do deals that make no sense or have deals fall apart because of non-nonsensical reasons. When this happens you have to navigate that and deal with repercussions. You could end up doing a deal that made no sense and then you have to be responsible for the operations of a business that likely will fail. On the other side, you could be deep in diligence and a partner decides on a whim that he doesn't want to do the deal anymore.

To contrast that though, I've heard of family offices that are well run and people that work there are very happy. They can have a great work/life balance and you can get good exposure to various deals. The hard part is determining which bucket this one falls into, which is made harder by the fact that you said it's new.

    • 3
May 31, 2018

IMO only one that is ok location wise would be if you were in Minneapolis (might be Carlson family? Know they're hiring). It's a big enough city with a good sports scene, big music acts come through, etc.

    • 1
May 31, 2018

Thank to everyone for the comments/thoughts!

A little additional background:

  • I would be lateraling over as an associate and I have asked about carry but have been told comp structure will be the standard Base + Bonus.
  • I have been told an MBA is not required to move upwards at the family office and the structure of the firm will be 2 family members (partners), CIO (also a partner), general counsel, and an associate (me)
  • I don't know anyone in the state/city and am also single
  • In my early 20's - joined my current firm straight out of undergrad (bypassed the usual 2-3 year investment-banking route)
  • My current team doesn't require an MBA to move upwards so not terribly excited on having to take the MBA route if the family office doesn't pan out
  • I think it would be a good experience to work on the PE side vs. the credit side - I currently solely focus on non-sponsored transactions in my current role and our diligence process is fairly similar to a traditional LBO shop except obviously I focus more on the downside and structuring around risk vs. the potential upside and growth potential in deals

@NuclearPenguins Good guess with Minneapolis, but sadly no - this city is a lot smaller than that (I know there is actually a bunch to do in Minneapolis and neighboring St. Paul). This is a pretty undesirable location.

It is tough to glean from interviews and on the internet on deal flow/expectations in closing deals/etc. given the fund is new (the fund doesn't even have a website). Have just been told that given the family name, they are shown many opportunities. I have mainly have been talking to the CIO, who is only 4 months into the job.

I guess I came into this under the impression that a plus would be that I get some sort of exposure to family connections but to @rebelins point on nepotism, it doesn't seem like its something to entirely bank on or consider in the decision making. Am I thinking about this correctly?

This has been a great discussion and I have a lot of thinking to do - any further comments/discussion always welcome.

    • 3
Jun 13, 2018

It really depends on the family office. There are some really good ones that have demonstrated that they are interested in actively pursuing platforms and building a portfolio (e.g. Pritzker, O2, Branford Castle, Metropolous) and plenty of others that pretend they are serious about private equity.

Jun 1, 2018

Do you have other offers?

Big bodacious goals will get us to another galaxy.

Jun 1, 2018

Family offices, especially smaller ones without a fully built out infrastructure, tend to be very focused on Fund of Funds investing and then going alongside those GPs into co-investments at maybe a 1/10 or no fee/no carry. They will tell you you'll get direct investing experience (co-investments), but you'll really just get shown deals by those GPs, get to ask a few questions, then give it a yes or no.

Since this may be a difficult position to recruit from into a pure direct investing role in the long term (FoF/Co-Invest experience + from non-core location), I would pass unless you are extremely excited about the role and more interested in those types of deals.

Jun 1, 2018
Excelling:

Family offices, especially smaller ones without a fully built out infrastructure, tend to be very focused on Fund of Funds investing and then going alongside those GPs into co-investments at maybe a 1/10 or no fee/no carry. They will tell you you'll get direct investing experience (co-investments), but you'll really just get shown deals by those GPs, get to ask a few questions, then give it a yes or no.

Since this may be a difficult position to recruit from into a pure direct investing role in the long term (FoF/Co-Invest experience + from non-core location), I would pass unless you are extremely excited about the role and more interested in those types of deals.

Yeah true - however, they have been pretty specific in saying that the deals they have worked on and will continue to work on are deals that they are leading. I can't disclose which company they invested in but the one deal I could find online so far was a 200+ million deal in Europe entirely funded by the firm.

Capitalism King:

Do you have other offers?

I'm close for a bunch of credit hedge funds / distressed debt opportunities but haven't been able to get a whole ton of looks from traditional PE firms. I'm beginning to think this is the norm for someone with my background.

    • 2
Jun 1, 2018

That's good to hear. At the end of the day until you are there you will have no idea what their portfolio is made up of, their track record, or actually how the deals they participate in are structured. I'd suggest doing as much diligence on them as possible and at the end of the day if you are comfortable with it, then go for it.

Jun 1, 2018

need the guru on this stat @APAE

Jun 1, 2018

Risky job. You're not senior enough to have earned a reputation that lets you recover if job doesn't work out. So you need this job to be a success. COL will mean pay will give you nice life. But if you're looking to date and marry, you're SOL.

    • 1
Jun 1, 2018

Would not do this if I were you. It is social suicide, and even though you will live like a king there will be very few (if any) people who will be able to relate to/match up with your lifestyle, career aspirations, etc. The fact that you are the only junior will only compound this.

Maybe you are extremely social and can make a whole friend group of people from very different educational/career backgrounds, but for 90%+ people it will be very difficult. Unless you are working with Warren Buffet himself in Omaha would be a hard pass for me.

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Jun 1, 2018

I wouldn't do it. I turned down the opp to lead a family office as well, I think the lack of security is what bothered me. I've seen it too many times in PWM, you have one anchor client that monopolizes your time and inevitably, something will sour: the family dynamic, the relationship you have with them, whatever. I would do a multi family office in a heartbeat, but a single family? fuck that,

Jun 1, 2018

Despite I tend to see it not differently from the thebrofessor, I'd like to tell you the story of a guy who joined a FO as associate reporting directly to the head of PE... and ended up working in a new PE firm started by his boss and the CIO of the FO who got fed up by the family's.

Most Helpful
Jun 2, 2018

@West Coast Analyst

Short answer: I wouldn't take this one.

Long answer: You need to design a rubric you can use to grade this opportunity. An easy one would be:

  • the CIO's background
  • the investment committee structure
  • whether family members are involved in the office
  • how confident you are in your own abilities
  • ---- plus how relevant those abilities are to your new role

One:

You want to make sure the CIO is a high-performing investor, manager, and adult.

If s/he's a bad investor, you're going to see crap dealflow that's annoying to have to spend your time on or (worse) actually do bad deals. This will also affect your future prospects. Reputation matters, and if you interview with someone who knows or knows of your CIO as a sucky investor, their impression of your caliber as a professional may unfortunately be harmed.

If s/he's a bad manager, your life is going to suck way worse than it would at a fund where you'd get multiple staffings with multiple different seniors. Small teams give no one any space to hide. You can't get away from a bad manager like you can in a banking group. If they don't like the way you deliver the work, you can either adapt or leave. For instance, if they're crap at communication, you're either going to have to just take it (and perhaps develop a reputation as the person who can't manage deadlines well, even though they're never communicated to you) or leave at some point.

If s/he's not a mature adult, you're going to suffocate quickly because there aren't any real checks on a single aspect of their personality. A family office CIO usually has complete freedom to shape the office in every way from top to bottom. This means you'll face their personality in every single element of your job: how collegial it is, how flat it is, how formal it is, how bureaucratic it is, and so on. Family offices are incredibly culture-driven. Senior staff tend to get picked based on how much the family leader trusts them, which means it's usually a "my way or the highway" approach.

I say none of this to scare you, simply to point out what it looks like in a less-than-healthy situation.

Two:

Try and find out how investment decisions are made or how the mandate was designed. Is there a three-person I.C. that includes the CIO, the patriarch, and his oldest son? Is it simply the CIO running a one-man show? Is there a fifteen-person committee that includes the (non-family) CIO, CEO, and COO plus seven family members from various branches plus five local business leaders or GPs from friendly funds?

Separate from soundness of structure, is there soundness of strategy? If the family wealth originated in oil and gas, was the office set up to diversify away into counter-cyclical assets (e.g. long-dated, buy-and-hold investments in consumer staples)? If the principal is a hedge fund billionaire, do you think it makes sense to join a team acting basically as a fund-of-funds to seed new public-markets GPs?

You want to assess the level of stability in the organizational design. An I.C. process that's as robust as wet toilet paper should give you real pause and prompt some diligence. Something on the other end of the extreme should too: an overly bureaucratic model inevitably stifles efficiency and innovation. (This tends to happen most frequently in the multi-family office category or in deep-generation single-family offices, e.g. the fifth generation.)

You also want to assess how wise the strategy is, both on an absolute basis and on a relative basis. Does it hold water to begin with, and does it hold water based on who's operating it? Buying consumer staples businesses isn't ever a bad idea on its own right. A buy-and-hold strategy in under-performing middle market consumer staples businesses when the CIO has a background only in REITs and REPE probably is.

Three:

One of the worst elements of a family office is how political the environment can get.

It's tough to navigate workplace politics, period. Doing it when your direct manager is the son, cousin, nephew, or brother-in-law of the guy whose money you're managing magnifies that exponentially. Worse still is when that person isn't even your direct boss but sticks their nose into your work. It's tough to figure out if or how to mention it.

Look to see whether family members are involved. If they aren't, look and see how old the children are. If it's a first-generation family office and the kids are in high school now, you're safe for the better part of a decade. If they're in college, the absence of family members may quickly change. If it's anything other than a first-generation office and family members aren't present, you're probably safe. If they are present, ask serious questions to find out exactly how they're involved. The best way to do this is to talk to other junior employees in the office.

Four:

Figure out whether you're someone who's already learned their relevant need-to-know skills and is looking for a place to really stretch their wings, or someone who is still learning the ropes and needs a forgiving and educational environment.

There's nothing wrong with either. A banking analyst role teaches you a lot. No one goes into it as a complete financial whiz. Sure, the kids who've done real summer analyst roles since freshman summer have a leg up and need fewer months to reach the apex of the learning curve relative to the arts major who somehow got a full-time job without interning anywhere, but everyone learns a lot as an analyst. A private equity associate role also teaches you a lot.

However, if you haven't yet solidified at least the foundational components of your skill-set, a brand-new family office may be a risky move for you to make.

I've written the prior three points agnostically, ignoring what you stated about yourself and the role, offering a framework anyone can use in the future.

Tailoring this to you, I would be concerned taking a role at (i) a brand-new office that (ii) has a "super flexible mandate but mostly focused on PE" given that (iii) you're coming out of a big credit platform.

Yes, a tremendous amount of the company-level analysis you do as a credit investor is portable to private equity. Is it a direct match? Nope, not at all. Look through all the "AMA" threads done by private equity associates and VPs on this forum.

They all include questions and answers on the specifics of their job: the specialized skill-set in deal management (process components, legal docs, and (lastly) the financial modeling everyone outside of the industry thinks is 80% of the work even though it's closer to 20%.

I can't be sure what your work experience has been at a Sankaty or Whitehorse type of place, but if your prospective new job is going to be on a lean team where you're expected to contribute meaningfully from the start (highly likely in a new office like the one you mention), you damn well better be sure you aren't standing on the mound throwing new pitches for the first time ever.

Following the sports analogy, it's okay to only be able to throw a 70mph slider and an 80mph curveball, but you better already know how to throw both of them, plus a fastball, screwball, palmball, and the rest. You can dial up the heat later as you get better, but you can't not know them.

I'd consider the social challenge of entering an area suburban to a second or third-tier city subordinate to a thorough analysis of the work itself: the role and the environment.

Anyone can get through two years of a boring locale. Yes, it'll suck, but you can pick at least one, maybe even two or three things to get really good at. Gym is an easy one: you can get in the best shape of your life. After that it's entirely a matter of taste: whatever hobbies interest you can fill your time. You can leave for b-school or your next job and follow whatever makes most sense to you then.

I know a guy who did three years at a Southeastern family office (not Atlanta, like Tennessee or Kentucky money) and became one of the best cooks I know. Seriously, I invite him and his wife over for dinner and have him grade how the chef did.

I know another guy who joined a European family office. He started two online businesses: an e-commerce site and an app/web development business arbitraging the local talent cost. The second one took off, so he sold the e-commerce site (less than a million) and focused on the better business. It's scaled so well he left the family office and is running that full-time now. He travels almost non-stop, has several dozen stamps in his passport, can work whatever hours he chooses, and is hunting for a third-world bride who he'll never show his wealth to because he's paranoid about divorce. That's a long, unrelated, but amusing story.

Comp would also be a subordinate concern. You're presumably in your first or second job out of school, so this would be your third. You're still at the point you should be prioritizing discovery: learning what you're interested in strongly enough to do it for awhile and learning the skills relevant for it.

Lowest of all should be the potential connections you get. This could be a real factor if you were post-MBA or its equivalent (those roles tend to be longer-term, and you and the office are having a real conversation about mutual investment in each other) or if you were joining an established and major-market office.

You aren't, however; you're looking at a Kansas or Wisconsin type family that is more likely going to be risk-averse (meaning they aren't going to hand you $25m as the anchor LP in a prospective fund you want to start four years down the road, or $2m as the seed round for a startup you want to launch) and you're also relatively young.

This is how I suggest looking at it. Good luck either way, just make sure you use your eyes well when making your decision.

    • 18
Jun 4, 2018

This is a fantastic post, Sb'ed for taking the time to write out something so insightful.

Jun 4, 2018

Thanks, I appreciated yours as well. I always love anecdotes based on specific decisions people faced, and you framed it well within the rubric you used at the time.

Jun 8, 2018
APAE:

[knowledge bomb that will ground how I approach future opportunities]

@WallStreetOasis.com if you do not compile and publish a book of @APAE 's greatest hits, then I will, and we'll work out the royalties in court.

    • 1
Jun 4, 2018

@APAE Thanks for taking the time to write out your thoughts - it was super helpful.

I had similar thoughts in terms of the credit to PE transition - CIO had actually told me that he believed me spending 2 to 3 years on the credit side "wasn't enough time to completely skew the way I thought about deals and keep me from being a good equity investor and that he would be more wary if he were exclusively focused on VC deals"

Seems like a risk that they had thought about but were willing to take. Agreed with your sports analogy and everything else that you've said.

    • 2
Jun 4, 2018

You're welcome, I'm glad you found it valuable.

One thing I don't see mentioned in the CIO's feedback is any positive recognition of what you can do. He may be right in pointing out that you aren't yet fully baked as a "credit guy", but does he find anything compelling about you as a private equity investor?

This unfortunately is a tough thing to raise as a prospective hire because you effectively switch out of the position of selling yourself. You start asking the guy on the other side of the table to sell you on you being a fit for the role.

You could try something like "Thanks for your feedback earlier, I've put more thought into how my experience on the credit side could shape my performance in this role. Have you seen any strong indicators in our interactions that struck you as a forward indicator of success?"

I commend you for how seriously you're weighing this decision. Keep asking good questions, it's how you get good answers (which help you shape good outcomes).

    • 2
Aug 30, 2018

What is the forum's thoughts on a family office that hasn't really done any deals in the last 2-3 years?

Aug 30, 2018
Black Magic:

What is the forum's thoughts on a family office that hasn't really done any deals in the last 2-3 years?

If you aren't doing deals, what are you doing?

  • Fund investing?
  • Co-investing (still somewhat "doing deals" but reviewing other firm's work rather than really doing your own)?
  • Public equities investing?
  • RE investing?
  • Managing existing assets (actually managing down in the weeds, or just watching EBITDA go up and down)?

Why haven't you done deals?

  • Not getting enough solid deal flow
  • Not getting IC approval on existing deals (from educated IC members)
  • Random personal dynamics with head of family office (sickness, etc.)
Aug 30, 2018

They have an RE arm and VC arm that must be taking up the capital. They own several port. cos. but appear to be passively managing. Not sure what their deal flow is - I just heard of the opportunity and researched the firm.

Aug 30, 2018

Doesn't seem like a viable option for the long-term. Aside from that, what are you going to be able to get out of it if you aren't gaining deal experience? Maybe operating/board experience?

Aug 31, 2018

So I think there's more to this than some posters suggest. It could be indicative of some problems that other people highlighted, however, it's important to note that there are certain things fundamentally different about a family office that might make them sit out of deals.

Firstly, unless you have heard it from them, I wouldn't just assume that a family office hasn't done deals. Several family offices I know don't disclose deals, let alone have websites, and those that do may only disclose certain deals. So they could have closed a few that you're just not aware of.

Also, a family office doesn't have the typical fund life that a PE fund does - so there is no need to deploy capital if the manager thinks it's the wrong time to do so. It could easily be that they haven't done deals for the last year or so because they think things are expensive at this point in the cycle and are choosing to dedicate the time towards building a pipeline, strategic initiative at portcos, or harvesting assets while multiples are high.

    • 3
Aug 30, 2018

Also what is an acceptable range base and bonus for a family office? NYC/Chi/LA/Dallas/Miami

Base: 95-135
Bonus 25-45

Hours 50-65?

Aug 31, 2018
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