Direct Investing & Asset Allocation
Moving beyond fund-of-funds: how family offices execute direct private equity and venture investments.
The Shift to Direct Investing
Over the last decade, family offices have shifted capital away from hedge funds and towards direct private equity. The rationale is simple: avoid the "2 and 20" fee structure and maintain tighter control over the investment horizon. However, executing direct investments requires institutional-grade underwriting.
Asset Allocation Benchmarks
Based on 2023 industry data across SFOs over $250M, the average asset allocation is roughly:
| Asset Class | Average Allocation |
|---|---|
| Public Equities | 32% |
| Private Equity (Direct & Funds) | 27% |
| Real Estate | 15% |
| Fixed Income / Cash | 26% |
Common Mistakes
The "hobby investment"—where a principal funds a friend's startup or a local restaurant without proper due diligence. If direct investing is authorized, it must follow the strict protocols defined in the IPS, often requiring unanimous Investment Committee approval.
FAQ
A: Unless you have a massive internal team, co-investing alongside a lead sponsor who handles diligence and board seats is highly preferable.
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