Family office insights this week:

• Why opportunistic deals have such huge potential

• Help! Sober and rich person is bored, needs ideas

• A pie chart on how family offices spend their days

• The book your kids should read to learn fundamental finance

• Can old age be an opportunity? A podcast explores.

Opportunistic Deals: the Hidden Edge for Family Offices

Family offices and UHNWIs can move quickly and decisively - this opens doors to opportunistic deals.

The agility of family offices positions them perfectly to capitalize on some of the most lucrative, overlooked deals in the market.

But what exactly are opportunistic deals?

Opportunistic deals are typically complex, high-risk (by traditional measures), and unconventional.

They often involve distressed assets, special situations, or market inefficiencies, with the potential for outsized returns.

Here's what makes them stand out:

⏳ Timing-sensitive: The window to act is often very narrow.

⚖️ Higher risk-return profile: Greater risk, but the reward potential is much higher.

🧩 Complex or unconventional: Deals may require deeper expertise.

🔒 Illiquid: Longer holding periods are common.

🔍 Born from market inefficiencies: Mispriced assets or companies are often involved.

The Need, The Need for Speed 🏎️

Family office capital is famously patient capital, but when it comes to opportunistic deals, speed is critical.

Large investment firms often take weeks to push deals through layers of committees and bureaucracy, but family offices can act in days, sometimes in hours.

With decision-making often in the hands of a small number of family members or close advisors, the process is streamlined, allowing them to quickly seize opportunities that others simply could not get over the line. 

For example, a distressed real estate asset may become available. While a bank or institutional investor takes its time conducting due diligence, a family office can swoop in, negotiate, and close the deal in a matter of days. This ability to act on instinct, prior knowledge of the project or trust in individuals involved can give family offices a sharp edge.

Networks Are Key 🗣️

Family offices have access to unique deal flow, much of which comes from their personal networks. Family offices can tap into off-market deals – opportunities that aren't widely advertised but arise from trusted relationships and referrals.

For example, a family office might hear about a distressed asset from a lawyer, accountant, or another family office before it becomes publicly available (if it ever does). These opportunities are often shared within close-knit networks, where relationships have been built over time.

Many sponsors will not want details of their deal in the public domain and therefore look for solutions within their trusted network. 

Why Family Offices Are Ideal for Opportunistic Deals

Family offices and opportunistic deals are natural partners for several reasons:

1. Patient capital: They can afford to hold investments for extended periods, allowing time for value creation strategies to unfold.

2. Flexibility: Without the constraints of external investors, family offices can quickly pounce on new opportunities.

3. Lower cost of capital: Many family offices benefit from low cost of capital - this often allows family offices to be more competitive in bidding for deals.

4. Strong networks: Extensive business connections can help grant access to proprietary deal flow and industry expertise. The network can be leveraged to add value to investments.

Different Types of Opportunistic Deals

Market Dislocation Opportunities

Economic downturns, geopolitical events, or sector-specific disruptions often create mispricing in the market. These dislocations are typically short-lived, but for investors who can move swiftly, they present rare opportunities.

Family offices can step in and capitalize on these temporary inefficiencies before larger, slower institutions can react.

Example: During the COVID-19 pandemic, many real estate assets were sold at significant discounts as owners faced cash flow pressure. Family offices with available capital were able to acquire portfolios of prime real estate at a fraction of their pre-pandemic value, positioning themselves for substantial gains as the market recovered.

Distressed Asset Acquisitions

Distressed assets - such as real estate, debt, or entire businesses - offer a high-risk but potentially high-reward opportunity for family offices.

These assets, often sold at a deep discount, can be revitalized through strategic investment and management. Family offices are particularly suited to these deals because they can afford to take a long-term view, holding onto an asset for years if necessary until it reaches its full potential.

Distressed investments require patience, capital, and expertise in restructuring, areas where family offices excel due to their ability to provide hands-on management and specialized knowledge. When markets recover or businesses are restructured, these investments can deliver outsized returns.

Private Company Investments

Family offices often have access to private company investments through personal networks, relationships with entrepreneurs, and specialized deal flow channels. Unlike public markets, these private investments are not available to the broader investment community, giving family offices a unique edge in finding hidden opportunities.

This type of investment often involves venture capital, private equity, or direct ownership stakes in businesses. Because family offices can move quickly and invest for the long-term they are highly attractive to entrepreneurs looking for strategic partners rather than short-term investors.

Special Situations

Special situations are complex, often misunderstood opportunities that arise during spin-offs, corporate restructurings, or other significant business events.

These deals require a deeper understanding of the underlying business and its potential, which many family offices possess if their background is in the same industry.

These opportunities are typically overlooked by traditional investors due to their complexity. However, family offices with the right expertise can exploit these mispricings and take advantage of the situation.

Example: A corporate spin-off might create two separate entities with vastly different financial profiles. A family office, recognizing the value in one of the entities, might acquire shares at a discount before the market fully prices in the company’s potential.

Regulatory-Driven Opportunities

Changes in regulations can create forced sellers or entirely new market dynamics, allowing family offices to step in where others cannot. Regulatory shifts, such as changes in tax laws, environmental policies, or trade agreements, often catch businesses and institutional investors off guard.

Family offices, with their ability to act independently and quickly, are often in a prime position to capitalize on these shifts.

Emerging Market Opportunities

Family offices with a global perspective can identify promising opportunities in emerging markets, which are often overlooked by more traditional, risk-averse institutional investors.

These markets can present significant risks, including political instability, currency fluctuations, and less mature legal frameworks. However, they also offer substantial growth potential for those willing to navigate these challenges.

Family offices, given their flexibility and long-term investment horizons, are well-positioned to capitalize on the high-growth potential of these regions. This allows them to take calculated risks where institutional investors may be hesitant.

Key Considerations for Executing Opportunistic Deals

1. Due Diligence: This is a tricky one. While thorough due diligence is always preferred, speed is often of the essence. The family office must have (or have access to) the experience and expertise to identify the key risks in an often truncated due diligence process.

2. Creative Structuring: Family offices can think outside the box when it comes to deal structuring. For example, earn-outs, vendor financing, or management partnerships may be used to mitigate risks or to enhance returns.

3. Operational Expertise: The best opportunities are often those in the wheelhouse of the family office. If the family office can add value beyond capital, either internally or through partners, the potential from opportunistic deals increases exponentially.

4. Exit Strategy: While family offices are less aggressive than PE/VC, there needs to be an end game. Plan for potential exits, whether through IPOs, strategic sales, or refinancing.

5. Risk Management: Opportunistic investments are high risk, so careful portfolio diversification and risk management are crucial.

6. Co-Investments: Shared Risk, Shared Reward : It’s common for family offices to co-invest with other family offices or private investors in opportunistic deals. This approach unlocks access to larger deals, spreads risk, and pools resources.

Unleash the Beast

Opportunistic deals offer family offices a compelling path to generating outsized returns.

By leveraging their flexibility, long-term perspective, and access to unique deal flow, family offices can capitalize on market inefficiencies and complex scenarios overlooked by other investors.

However, success requires smart planning, execution, and a willingness to take on risk.

Family offices that remain agile, nurture their networks, and develop the right capabilities will be well-positioned to unlock substantial value through opportunistic deals.

𝕏 highlights

How family offices are spending their time.

Coming up - look out for a special Careers newsletter next week.

And a little engagement bait to finish.

 💼 where to work

Three notable family office job opportunities currently open…

Vice President - Goldman Sachs Family Office (Dallas / Service Provider)

Director of Operations - Private Family Office (Remote / Single Family Office)

Global Industrial, Cyclicals, Energy & Commodities Director - Private Family Office (New York / Single Family Office)

📚 what to read

Time for a classic! This is a great book for kids to learn fundamental financial lessons.

Timeless financial advice is explained through parables set in ancient Babylon. The book emphasizes key principles for wealth-building, such as saving a portion of your income, investing wisely, and living below your means.

It teaches that financial success comes from discipline, good habits, and consistently applying sound financial principles.

📻 what to listen to

Can old age be an opportunity? In this WSJ Future of Everything podcast, the prospects and opportunities of an aging population are explored.

📺 what to watch

A webinar on family office cyber security from Deloitte.

And finally…

Could I ask a favor?

If you’re not already, could you follow along on LinkedIn?

It’s time to expand the network. Thanks! 🙏

Watch out for the upcoming careers special newsletter. This will have content around careers, with job postings and candidates.

Family Office Buzz will be back on Monday (here’s the last edition if you missed it) with more of the best content on family offices and beyond.

Until next week, see you on 𝕏 or LinkedIn

X

𝕏 @MrFamilyOffice

𝕏 The Family Office Community

in LinkedIn

✉️ [email protected]

📶 RSS feed