A new report suggests that family offices are changing how they deploy their money, with a notable move into direct investment approaches. 

Direct investments, club deals and, perhaps surprisingly, sustainable/impact investments emerged as major investing trends for family offices in PwC’s recently released Global Family Office Deals Study.

Family offices continue to shift away from investing in real estate and funds, instead investing directly in companies, including startups, artificial intelligence and healthcare, according to the study, which surveyed more than 11,00 family offices around the world, including nearly 5,000 in the US and 4,300 in Europe.

The high expenses of investing in funds such as private equity, hedge funds or venture capital, combined with volatile returns, have put off a number of family offices, said Jonathan Flack, family office leader at PricewaterhouseCoopers.

What’s more, high interest rates last year made deals less attractive for many funds, who wound up having less need for outside capital, Flack added. “The pause gave family offices an opportunity to think differently about where they invest,” he said.

“We’ve seen increased client interest in the direct investment space and anticipate this continuing through 2025,” said Chris Kirk, head of investment and client solutions at Rockefeller Capital Management. Companies focused on “thematic areas” such as artificial intelligence, robotics, life science, sports, music rights and asset-backed royalties have all drawn investor interest from family offices, Kirk said.

Market Street Trust Company, however, is sticking with fund structures including private equity and venture capital as its primary strategy, said chief investment officer Marc Dizard. 

That approach, according to Dizard, allows the family office to take advantage of “the expertise of experienced managers” to achieve a well-diversified portfolio “all without the complexities of direct involvement.”

Nonetheless, Market Street does “recognize the growing appeal of direct investments, particularly their potential for greater control, transparency and alignment with long-term goals,” Dizard said. 

If the right opportunity arises, the firm is open to exploring direct investments this year, he said, “If they reflect our values, play to our strengths and align with our vision for sustainable growth.”

Join the club?
Club deals, where family offices co-invest with others, account for 60 per cent of their investments by volume, according to the PwC report. One reason for the popularity of these deals, the report stated, is the “NextGen effect” – the tendency of younger family members to prefer investing with a like-minded cohort and friends.

“We’re seeing more and more of these deals every day, and don’t see it stopping anytime soon,” said Flack. Neither Rockefeller Capital nor Market Street, however, reported that kind of enthusiasm. 

“Exclusivity matters” to wealthy families and Rockefeller will, in some cases, invest alongside other family offices, Kirk said. But the majority of alternative offerings available to clients on its open architecture investment platform are “exclusive to Rockefeller in the context of wealth management,” he said.

Market Street cited “sourcing challenges,” prioritizing diversification, and access to professional expertise as reasons why it hasn’t participated in club deals.

But the firm will consider club deals as a “potential option,” Dizard said. “These arrangements provide benefits such as shared risk, access to larger-scale opportunities and the ability to work alongside trusted partners,” he noted. 

Sustainable?
Sustainable investments are playing an increasingly important role in family offices’ deal flows, particularly in areas including education, renewable energy and microfinance, according to the report.

“This is part of a clear shift across the global family office community away from traditional investments and toward impact investments,” the report said.

This finding seems at odds with the dramatic shift away from ESG investing in the past year. But Flack said it’s an American tradition that wealthy families feel they have “an obligation to help their communities, and they will continue to do that.”

Although investor sentiment may have shifted away from ESG, “it remains a significant consideration impacting generational shifts,” said Market Street’s Dizard. “We anticipate these investments will continue to grow as a natural extension of market forces.”