Family office versus traditional PE shop

Can someone shed some light on how culture, comp and deal flow are like in a family office vs. PE firm? How do they evaluate deals differently? What is the exit opps like between the two? Why would you prefer working for one or the other?

Comments (14)

Apr 4, 2019

Family offices vary so much that there is no way to make a blanket statement comparing to PE.

Apr 4, 2019

Then why would one person work for a family office versus PE?

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Apr 4, 2019

Amongst other things:
-Better quality of life / work life balance
-No need to fundraise (ie. can 100% focus on investment)
-Broader investment strategy (family offices with their long outlook and broad investment mandates can do deals that regular PE wouldn't)
-Long investment horizon and lower deal volume means more time to spend with portfolio companies (some PE professionals believes operational involvement is beyond them, some love it more than doing deals)
-Ability to leverage the family's connections / network to bring in deal flow

But as said above, family offices comes in all shapes and sizes and you can't really generalize so it's really on a case by case basis.

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Apr 4, 2019

Do you know if comp also varies greatly depending on fund? I'm guessing generally speaking the hours are better than PE? Can you define better? 50 hours?

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Apr 5, 2019

I'm on FO side. There's almost nothing that can be generalized here. PE shops already vary a ton from eachother, and family offices do too, and those differences only get magnified further when you compare FO to PE and vice versa.

Only thing I can generalize is that if you're at a well known PE shop, industry people will have a better idea what you do every day and you won't need to spend as much time explaining what you do.

FO side can be more random. Families will have their own preferences and biases that impact investment decisions. What can be great about FO side, if you find the right situation, is their patience. No strict time horizons dictating things, as is sometimes the case when PE shops have to think about redemption dates and so forth.

Exit opps from either are going to depend entirely on what you've learned there. If you do a lot of deals then that's marketable to any job involving deals.

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Apr 5, 2019

Going off this make sure you family office actually listens to the investment professionals, I have heard stories where some Family Offices are basically back office support for the family who make all the decision to use as accountants. Some families are so disconnected that it is truly ran by the investment professionals in the office.

Apr 5, 2019

What can be great about FO side, if you find the right situation, is their patience. No strict time horizons dictating things, as is sometimes the case when PE shops have to think about redemption dates and so forth.

This can impact comp in a huge way though, right? I've seen it solved through phantom carry, but if holds are indefinite or significantly longer term, it's much more difficult to earn an equivalent amount of carry without having some type of predetermined liquidation timing, whether that is phantom or real.

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Apr 5, 2019

Yeah it presents a big risk for the FO employee if comp isn't structured appropriately to reflect these long-tailed investments. On the plus side, if you can structure the comp appropriately then it opens the door to more flexibility in evaluating investments (longer time horizon = more options) and also more job security for the FO employee because managing those holdings over the long haul makes the employee 'stickier'.

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Apr 5, 2019

I work at a family office REPE firm backed by institutional capital. Pros are good work/life balance (usually 40-50 hours unless traveling), nimble decision making (100% internal investment selection discretion), and laid-back culture (jeans and golf shirts). Cons are lack of support (my role includes both senior analyst and origination director duties) and under market pay (but higher pay per hour, which is more important to me). I would not jump to a big fund (think Ares/KKR/Invesco) unless I could increase my total comp at least $100K.

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Most Helpful
Apr 7, 2019

Very difficult to generalize the difference of experiences between the two as both are highly dependent on the individual firm. Things to look out for/diligence on the family office side. 1) What is the background of the family? How did they generate their wealth? Was it through an operating business or long-term investment operations? If it was through an operating business, was that business acquisitive during its time? I have seen family offices struggle to get deals across the finish line if they are not experienced with the deal cycle and investment process. 2) Who is leading the firm? Did the family go out and hire an experienced team? (including a known partner/senior investment professional) I think it's important signaling (in most cases) that there's at least one significant external hire who is leading the effort. 3) Who holds decision making power? Is the investment team treated like an outsourced group of people who read CIMs and build models while the family is removed from the day-to-day, though expect to make every decision? Or is the investment team treated like an external private equity firm and provided true autonomy in operations? 4) Are there agreements in principle to put capital to work at a certain cadence? 5) Is there an agreed upon investment criteria/focus area(s)? 6) Is compensation structured in a manner that ensures alignment? Benefit of a family office is the investment horizon and flexibility that comes along with it. That said, if you're being paid shadow carry + lower base & bonus instead of no carry + higher base & incentive bonus, then are you really aligned with a longer investment horizon? Family is building wealth for generations, when you're likely targeting 3-5 year intervals.

These are only some areas to diligence. I have seen many family offices get stood up during the past ten years, saying they want to play the role of GP vs. LP. They hire a decent team, make two investments soon after starting (honeymoon phase), and then waste everyone's time as they struggle to get deals across the finish line (for a multitude of reasons). The frustration ends up building to the point where the team then defects and the family transitions back to their role as an LP, where they should have remained all along.

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Apr 8, 2019
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