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Two family offices can look at the same deal and reach opposite conclusions. The reason usually has little to do with the deal
Show the same deal to two family offices, and you’ll often get two different answers. One writes a check. The other looks at the same numbers and passes. Ask enough principals why, and a pattern shows up: the decision tends to turn on the family, not the deal.
The obvious answer is risk appetite. Some families are aggressive, others careful. But the people making these calls say that doesn’t really explain it. What separates a yes from a no, they argue, has more to do with who’s asking than with what’s on the table.
One thing worth asking is how much the source of a family’s money (the business that made it, the cash flow that still feeds it) shapes the way that money later gets invested. It’s part of the story. But talk to enough principals and a blunter version comes through: the question at a family office is rarely “Is this a good investment?” It’s “Is this a good investment for us?”
The problem they’re trying to solve
Duncan Randall thinks the premise needs widening. A partner at Rivington Company, Randall is a New York-based real estate developer and investor with holdings across the U.S. He spent nearly two decades at the Oppenheimer Family Office, where he founded and ran Tana Africa Capital, a $600 million private equity joint venture with Temasek. South African by background, he has lived in the U.S. for seven years.
“I don’t think the difference between family offices is simply risk appetite, or even the nature of their cash flow,” he said. Cash flow counts for something, he allows: “A family with a stable operating business throwing off cash every year can usually afford to be more patient and live with illiquidity.” But he doesn’t think that’s what tips a decision one way or the other.
“In my experience, it comes down more to what problem they’re trying to solve.” Every family shows up with a different set of constraints and strengths. “Every family office has a different mix of objectives, existing investments, liquidity needs and, perhaps most importantly, areas where they have real expertise.”
That last part carries more weight than outsiders tend to assume. “A real estate family like mine is often comfortable underwriting risks that would make a manufacturing family uneasy, and vice versa.” Time horizon splits families too. “Some families genuinely think in generations; others, despite saying they do, are effectively investing on a three- to five-year cycle.”
He points to a distinction he thinks often gets missed, between being able to take risk and wanting to. “A family may have the balance sheet to take considerable risk but simply choose not to because preserving wealth is more important than maximizing returns.”
Which brings him back to the same place. “Ultimately, I don’t think the question most family offices ask is, ‘Is this a good investment?’ It’s, ‘Is this a good investment for us?’” Two sophisticated investors, he adds, “can look at exactly the same opportunity and reach opposite conclusions, and both can be entirely rational.”
The people before the numbers
Ricky Novak comes at it from a different angle: co-investing, where one family puts money into a deal alongside another. Novak is co-founder and managing partner of The Strategic Group of Companies, which works with family offices on real estate, tax, and private equity, and he co-founded his own multifamily office, Strategic Investment Holdings, on which he serves on the investment committee. Its portfolio spans mining and manufacturing, carwashes, beer and spirits, consumer goods, and real estate. He also co-founded the Napa wine label Menagerie. When another family brings him a deal, the deal is not the first thing he looks at.
“I think there are many more factors that need to be considered when co-investing with another family,” he said. “Many of those are more important than the deal underwriting itself.” Before the numbers, he wants to know who he’d be investing with. “When we co-invest, we want to know and understand the family.”
Then comes a long list of questions:
“Who are they? What is their core competency? Does the investment correlate to that core competency? How much of their own capital / what percentage of the capital stack are they investing? Are they the sponsor, or are they asking us to invest in a deal that they are investing in but are not the sponsor? How long have they known the sponsor? Have they invested with them before? What was the process like? How was communication? What was the outcome? Who internally/externally handled the family’s underwriting and vetting of the investment if it’s not the family’s core competency? Does the sponsor have a core competency in the industry? Who is the leadership team associated with the investment, and what is their track record?”
Only then does he turn to the deal itself. “All of these questions are materially important before we even want to begin to look at the economic metrics of the investment itself.” His bottom line: “Our view is that return of, and return on, capital will be impacted more so by the above answers than the actual deal itself.”
The family, not the deal
They stress different things. Randall focuses on the makeup of a single family, Novak on the relationship between two of them. But they land in the same spot. On its own, the deal decides less than everything around it: who’s putting up the money, what they know, and who they trust. At this level, the allocation says as much about the family as it does about the opportunity.
Same deal, two answers. Usually, the deal had the least to do with it.