The Rise of Private Equity in Family Office Portfolios
The evolution of private equity has subtly but profoundly altered the way family offices have approached their investment strategy. What was previously a small, specialized allocation of funds has now become a "must-have" at the core of how many of the best-performing portfolios are constructed today, creating additional pathways to sustainable growth, control, and value creation.
Family offices, or simply "families," with annual revenues of USD 1.36 trillion, oversee and protect the wealth and legacy of ultra-high net worth individuals and families, increasingly view private equity as a method to access performance beyond typical public, traditional markets. Private equity investments often involve buying into private companies (making smaller, strategic investments), actively working to improve the operational performance of those companies, and then positioning them with growth or exit outcomes that ultimately provide them well in excess of expected returns.
This change of mental model, somewhat due to demographic changes allowing emerging managers to come to the forefront, changing how family offices view and use capital towards seeking returns (beyond the preservation view typically applied), shows how family offices have directed operations and not just engaged passive capital strategies in the past. Traditionally, capital was only assessed as a hedge against loss (preservation). This dynamic now has the potential for families to exert some operational influence and upside potential that is generally not attainable through traditional alternatives.
It is not enough for wealth advisors to acknowledge or understand this shift. It is vital for success.
Why It Matters:
The move towards allocating private equity in family office portfolios represents an overall generational shift in attitude from a passive strategy toward capital preservation to active participation in the long-term value-building process.
Performance Edge: Private equity investment performance has historically outperformed public markets over time. Private equity real estate also offers exceptional return potential over the long term, as the investor assumes thoughtful risk.
Exclusive Access: Many family offices are uniquely privileged to access deals with limited subscribing opportunities (closed or invitation-only) that are not available to institutional investors.
Generational Alignment: Such opportunities align directly with the family office's long horizon, geared towards building and transferring wealth across generations.
Strategic Value Added: Direct investment adds value through a higher level of involvement and control, the type of value through impact, whether that means influencing operational efficiencies or changing the overall trajectory of the company's growth.
As private equity resurges and becomes part of a wealth strategy, it is not merely the return profile (though that is a noteworthy contributor). The continued growth and presence of private equity within the family office realm does not represent a trend. Instead, it is indicative of a substantive paradigm shift in how sophisticated capital is thinking.
Why Family Offices Are Drawn to Private Equity
There are several benefits to private equity investments for family offices that seek to enhance their investment program.
These investments often yield superior returns, to the extent that private equity typically outperformed public markets by 500-700 basis points, per annual historical data.
Private Equity Aligns with Family Offices' Goals
Private equity represents a longer investment horizon than traditional investments (two to five years), which is well-suited for the multigenerational objectives that family offices disclose. This structural compatibility of private equity supports family offices in the following ways:
Increased Value Add: Family offices have the capacity to think about how to add value to their portfolio companies. They have a role to play and can influence the way they shape an organization, whether directly through better operations, better leadership, or with a vision and long-term strategy.
Tax Efficiency: Although dividends and other forms of moving capital are often realized in other ways (i.e., "earning and spending," or distribution), a significant chunk of private equity structures are capitalized at a level of favourable long-term capital gains treatment. This supports improved wealth preservation strategies.
Market Calibrator: Private equity is often cited as a means of providing ballast and smoothing investor returns during times of volatility. Because the correlation to public markets is substantially lower, private equity can be grounded in its relative stability.
For family offices that seek to invest with purpose and perpetuity, private equity (viewed in this context) represents more than just an asset class. It is a supporting leg of their overall investment strategy.
Expanding Access to Innovation
Private equity also unlocks avenues to sectors traditionally excluded from typical portfolio strategies. Via rigorously vetted opportunities, family offices can gain exposure to:
Emerging technology platforms
Next-gen healthcare and sync innovation
Sustainable energy and climate solutions
Companies enabling digital transformation.
These are not just fad sectors; they are future-developing sectors where early entrants will realize massive, long-term value.
Benefits of Investing in High-Growth Companies
Private equity provides family offices the opportunity to invest in a company before it goes public, which allows for value creation at the largest growth inflection.
These investments run powerful engines for generational wealth with the operating skill set of private equity partners. This is not just value creation but being part of the action at the front end of transformation.
Staying Informed and Involved
Private equity investments provide visibility and involvement that more passive investments may not. Some benefits of participation in private equity investments alongside the family office include:
Visible and regular financial reporting and performance data
Periodic updates across a portfolio that are relevant for long-term planning
Open format communication with company leaders
Inputting on strategies if a company's shareholders are aligned
This form of investment provides family offices with visibility and reporting they require and an investment professional they can trust.
Private Equity Allocation in Family Office Portfolios: A Statistical Overview
A Strategic Change: Family Offices Ups Private Equity Allocation. New data demonstrates a distinct evolution in family office strategy.
Private equity allocations quadrupled from 22% in 2021 to 30% in 2023, which means that family offices increased allocation by 8 points, and demonstrates a strategic shift towards private markets.
Given the larger context, there are several reasons driving this change:
Reducing Volatility: Private equity acts as a buffer against volatile pricing in the public markets.
Proprietary Access: Family offices are getting direct deal flow through growing private networks.
Next-Gen: Next-gen members are more interested in private market exposure than their parents and grandparents.
Tech/Social: Yes, tech! There are new resources, diligence capabilities, and evaluation platforms that are speeding up deal execution.
Talent: The increasing number of people in private equity is increasing staff depth by hiring private equity professionals.
This trend can be detected in all segments of family offices:
Small Family Offices (<$500M): 25% average allocation
Medium Family Offices ($500M–$1B): 28% average allocation
Large Family Offices (>$1B+): 35% average allocation
Overall, these trends suggest more than a mere rebalancing; they demonstrate a meaningful shift in how family offices approach capital deployment, growth aspirations, and generational wealth planning.
Private Equity vs. Venture Capital: Recognizing the Differences For Family Offices
Family offices are growing into private markets, and a distinction should be made between two of the most common alternatives to public markets - private equity (PE) and venture capital (VC). Despite their similar long-term return objectives, the timing, structure, and risk profile of each alternative require family offices to think carefully about allocation.
Generally, Private Equity invests in established, revenue-generating companies that have sustainable operating histories and cash flow. The lower volatility and established operating history tends to provide PE investors with predictability and clarity. For family offices focused on wealth preservation and generational planning, PE ownership structures provides long-term strategic guidance for a company, a well-defined exit strategy, and operational control.
In contrast, a family office investing in Venture Capital may be investing in a company in its early developmental stage that has not yet commercialized a product. VC investments catalyze innovation across many markets including technology, healthcare, life sciences, and sustainable energy. As with all capital markets, the risk profile for Venture Capital is much greater than for PE, but the potential for outsized returns will appeal to family offices with a higher risk profile or that are interested in accessing emerging sectors.
In practice most family offices have a blended path. The family office horizon large scale PE allocations generally are 15% - 25% of total private market allocation vs. larger VC allocations of 5% - 10% total private market allocation. The low probability of real outcome for VC investing, means that the family office should hold small VC stakes. Determining the exact proportion of private market allocations is affected by multiple factors, including:
Investment horizon
Liquidity needs
Risk appetite
Sector familiarity
In conjunction with each other, both PE and VC are complimentary vehicles that, when allotted intentionally, allow family offices to build portfolios that are both resilient and growth-oriented, while also aligned with family legacies and generational aspirations.
Direct Investments vs. Private Equity Funds: What's Best for Family Offices
When family offices increase their allocation to an asset class like private equity, they face a fundamental question: do they want to invest directly into private companies or provide capital into private equity funds?
In the past few years, we have seen more nimble family offices moving to direct investments, so they can retain complete control over investment terms, timing, and operational involvement as an owner of the business. A direct investment creates unique transparency in investing, does not have the conventional management fees, and increases the availability of proprietary deal flow. As owners of the business, direct investments allow them to invest according to the specific goals and values of the family. That said, direct investments require internal expertise and diligence, and there are higher concentration risk.
Private equity funds, on the other hand, offer professionally managed capital, built-in diversification in sectors and geographies, and more closely curated and vetted access to deal pipelines. The funds route benefits family offices looking for scale and/or to minimize their involvement. But funds typically have higher fees, longer lock-up periods, and less decision-making control.
There is no perfect answer to move forward; just like with anything else, the best option depends on each family office's available internal infrastructure, risk appetite and desired level of engagement. In fact, we are seeing more family offices adopt a hybrid solution that combines the control of a direct deal with the scale and diversification of institutional funds, allowing them to remain agile without giving up discipline around a long-term portfolio.
Our Approach to Family Office Management with Tri Star Sports & Entertainment
At Tri Star Sports & Entertainment, family office management is not static; it is adaptive by design. Under the leadership of CEO and Founder Lou Taylor, we have developed a family office model that connects proven wealth preservation techniques with sophisticated exposure to private equity and other alternative strategies.
Our Core Philosophy:
Custom financial approaches for ultra-high-net-worth individuals.
Purposeful, diversified private market investment implementation.
Revocable long-term models that account for the risk tolerance and legacy concerns of the client.
Regular oversight focusing on multi-generational sustainability.
What makes Tri Star unique is our capacity to integrate complexity, but never lose sight of our client relationships. As long as we have been in existence, and whether that has been formally or informally, our purpose has always been to do more than just traditional advisory. We have always had partnerships in mind and structures that are meant to protect multi-generational wealth through the course of decades.
Since our inception in 1992, we have continuously adjusted to the evolving financial landscape based on what we have observed. Specifically, our family office services have evolved reflecting the needs and interests of our clients in the entertainment and sport industries, ultimately including private equity as a tool among many to digitalize client investments and create exposure for growth potential.
What our efforts reflect today is a very simple reality. The best family offices are not afraid to evolve, but they have never forged too far outside the direction that warranted being named a family office.
