Relationships key to raising capital from family offices - AVCJ Forum

"We don't like GPs coming to us and saying, ‘It's a final close and you have two weeks to decide.' It is easier when we know them for a year and we know where they are going," said Alexander Pestalozzi, managing director at Mueller Asia, which is part of a Europe-based family office. "If we just have 2-3 weeks, there is a high probability we wouldn't invest, even if it is a great fund."

While the Mueller family still owns and runs its main business, other family offices are several generations old, the companies that generated the families' wealth long since divested. This has implications for the level of involvement family members have in the investment process and how private equity firms engage them.

"You need to start talking to the purpose for the patriarch. What is in it for him? Does he want to educate his kids? Are they interested in philanthropy?" said Fintan Maher, national head of wealth at the Myer Family Company, which represents 120 Australian families in addition to the Myer family itself. "If you can do this you can start to have a conversion with a person who has made a lot of money but who may not know private equity that well."

Pestalozzi added that it pays to establish relations with investment professionals who work for the family office before sitting down with the patriarch or principal. "Find the guy in the family office who likes you - he is more than happy to sell your fund. If you find that guy it's much easier to convince the principal because you have someone supporting you."

The maturity of a family office also impacts its willingness to make co-investments in different sectors. There is a natural tendency to prioritize areas with which the family office is familiar - often assets in the same sector as the family's operating business - because it is easier to conduct due diligence and get comfortable with an opportunity.

Maher was previously CIO at Irelandia Investments, the family office of the Ryan family that made its fortune from Ryanair. He observed that every time the family made an airline-related investment, it attracted plenty of GP co-investors and generally made a lot of money. Whenever it invested outside that space it lost money.

These nuances aside, family offices represent an attractive target LP base for private equity firms, not least because they are less inclined to the herd mentality that characterizes other classes of institutional investor. Wealth preservation and generating returns are obviously a priority for family offices, but not necessarily the only priority.

"Venture capital in a certain country might not provide the best returns now but we think it's important we learn about it," said Sam Robinson, managing director at North-East Private Equity Asia, part of another Europe-based family office.

The AVCJ Australia & New Zealand Forum was held in Sydney on March 3-4. For more information, see www.avcjausnz.com.

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