How Do Family Offices Invest in Private Equity Assets?


Family offices are growing as a preferred wealth management structure for the very wealthy, with private equity playing a key role. But how do they decide where to allocate capital?
- Family offices allocate capital through managed funds, direct investments, and co-investments, each offering different levels of control, risk, and diversification.
Family offices are booming as a way for the very wealthy, known in the industry as ultra-high-net-worth individuals (UHNWIs), to manage their money. With their focus on long-term, multi-generational investment, private equity (PE) – investing in the shares of non-publicly traded companies – is a natural home for some of their money. Family offices’ PE exposure increased from 22 percent in 2021 to 30 percent in 2023, according to Deloitte.
Family offices tend to adopt three different approaches to PE investing, including:
- Managed PE funds. These professionally managed funds provide access to broad industry expertise, due diligence capabilities, and a diversified portfolio of private companies, while reducing the family office’s operational burden. They’ll charge fees for their services, however.
- Direct investments. Many family offices, especially those with entrepreneurial backgrounds, prefer direct investments, whether in venture or growth equity for the exposure to earlier-stage companies in sectors like technology, biotech and fintech.
- Co-investments. Family offices sometimes also invest directly alongside PE funds, a practice that has gained traction in recent years. It allows them to retain more control, participate in selective deals, and avoid fund management fees.
What drives where family offices allocate capital
The most common decision-making structure for capital allocation, according to the law firm Dentons, is family office staff collaborating with family members, with decisions made in consensus (30 percent). This is closely followed by key family members alone deciding how and where to invest (29 percent).
In an interview, Claire Madden, founding partner of Connection Capital, an alternative investment firm for high-net-worth and family office investors, explained the difference in approach: “With institutional capital you’ve got investment managers sitting at the beginning of the year saying ‘our asset allocation for 2025 looks like this, and we’ll stick to it’. If you’re investing your capital, you’re a lot more opportunistic.
“Larger family offices are more disciplined in terms of their investment approach. But sometimes the incentives are not there for the investment teams to step away from what are quite safe investments. It can mean a lack of agility,” she told ThinQ.

Source: Family offices' investment strategies, Dentons, 2023
The vast majority of family offices (some 85 percent) aim to split their investments across different so-called factors, according to Dentons. Factors include value, size and momentum, which all influence an asset’s risk-return profile. 74 percent aim to diversify their investments across different geographies.
However, Lyall Davenport, founder and managing director at his family’s office Tonu Partners, said in an interview that there’s a trade-off between the risk management benefits of diversification versus backing what you know.
“We’ve got a lot of private credit, because I come from that background. And we’ve got a lot in the industrial and life science space, where we’ve previously owned businesses like Cosworth Biocare, because we’ve got an orthopedic surgeon in the family who really understands that space.”
Preservation versus creation
Family offices typically seek to strike a balance between wealth preservation and wealth creation. Wealth preservation strategies minimize risk and make the most of tax planning, favoring assets like commercial real estate that offer stability and potential for reliable income generation.
First-generation family office founders, often with an entrepreneurial mindset, tend to focus more on wealth creation. They often pursue higher-risk, less-liquid investments, with a strong preference for alternative investments, with one report finding they allocate, on average, 27 percent of capital to buyouts and 11 percent to VC investments.
Hillspire, for example, is the first-generation family office of Eric Schmidt, former CEO of Google. It has invested deeply in venture capital, private tech startups and cutting-edge innovation in the AI and biotech space, with a focus on wealth generation and shaping the future. Hillspire has made investments in 22 private AI firms since 2019.
To balance these priorities, 81 percent of family offices in Dentons’ survey use a mix of active and passive investment strategies. Active strategies are used for potential outperformance and the option for more hands-on involvement and control that direct investments could offer, while passive strategies are for lower maintenance long-term gains. Funds are a popular passive option, but they have pros and cons.
Investing in funds
Investing in managed funds offers a number of benefits to a family office: access to specialized professional management expertise, opportunities to diversify their portfolio across different asset classes, exposure to niche markets, and a reduction in their investment management workload.
However, managed funds might not be right for offices prioritizing tight control over their capital deployment or that prefer bespoke opportunities in line with their particular investment goals or values. Liquidity concerns may deter family offices from managed funds, particularly for illiquid assets like PE.
These factors may help explain why, after reaching an all-time high in 2021, data compiled by PwC show that family offices’ fund investments in 2024 were more than 73 percent lower in both deal volume and value. That said, the tide may be turning: 29 percent of family offices were targeting an increase in PE funds versus 27 percent in direct private investments, according to a Deloitte report published last year.
Davenport says that fees are a drawback of managed funds, but argues this can be overcome by investing in open-ended managed funds, “because they don’t have the same fee capital structures, and there isn't a pressure to deploy capital as fast as possible.”
Plus, he adds, overall returns over the long term can offset the management fee and make managed funds worthwhile – particularly as family offices can usually access PE funds with a higher minimum-investment level, giving them access to a greater number of opportunities.
Direct investments
Investing in PE funds is less popular than making direct PE investments, data from Deloitte show. Direct investments accounted for 17 percent of the average family-office portfolio while PE funds accounted for 10 percent, according to a survey published in 2024.
Direct investments allow family offices to gain greater exposure to sectors relating to their expertise and increase the control they have over their holdings. This includes allowing them to structure investment terms, negotiate directly and manage their own investment timelines, including when they exit.
Family offices typically take minority stakes in their direct investments, but not always. Larger family offices, with more than $1bn in assets under management, hold controlling stakes in 44 percent of their direct investments, compared to 30 percent for those with less than $1bn in assets.
A survey of family offices and their investment plans up to 2028 found that healthcare is set to be the most popular sector for direct investment (65 percent), followed by disruptive technology and digital tech (61 percent) – areas that offer opportunities to invest in startups, growth stage and beyond.
Davenport says direct investments “are in our DNA as a family office”, but admits he is more selective with them: “You're not just investing in an asset class; you're investing in a team, you're investing in an industry. It's really making sure you understand the space that you're getting into.”
And the allure of the significant returns of a single asset opportunity could overshadow the risks.
“Single assets might be exciting, but they can also lead to a binary outcome – you can lose all your money,” says Madden.
“The attraction of having at least some exposure to managed funds is that you are backing the expertise of those private equity managers to source suitable opportunities, negotiate attractive entry prices, execute a sometimes very challenging value creation plan over a three- to five-year whole period, and then generate a good exit for you.”
Co-investments
Co-investment is another common strategy among family offices, with 42.5 percent globally co-investing alongside other family offices, venture capital, private equity or real estate investors as of 2020, according to FINTRX.
Co-investments allow investments directly alongside PE funds but not in the PE fund itself. Typically, a lead investor with expertise in an area encourages other investors, including other family offices or PE funds, to take part.
For example, EQT and UK-based private equity firm Hg Capital are co-control shareholders in IFS, a leading provider of cloud enterprise software and industrial AI applications. TA Associates, a U.S. PE firm, is a minority shareholder, alongside others, including a wholly-owned subsidiary of the Abu Dhabi Investment Authority and the Canada Pension Plan Investment Board.
Family offices benefit from co-investments in two ways: more control compared to investing in a managed fund, and the potential for higher returns.
However, according to EY, there is an oversupply of potential co-investors, which has taken a toll on deal quality.
Creating a legacy
Family offices’ approach to asset allocation and preference for either direct investments or managed funds comes down largely to the individual decision-makers. Although these preferences could vary over time and across generations, ultimately, family offices invest to create a legacy. That is certainly true for Davenport’s family office. “Hopefully, in 10, 20 years, the third generation will start to move into a more active role within the family office,” he says.
“We want to make sure those structures are correctly put in place and that we continue to define our criteria – the way we make decisions, what our ambitions are, what the objective of the family office is. From that perspective, we’re laying a foundation quite early to maintain long-term wealth.”
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