Don’t Chase Family Offices…Do This Instead

Natu explains why many “family offices” aren’t what you think. Tune in below.

Transcript

Hey everyone, Natu Myers here again, back with another video. And today I’m going to talk a bit about why family offices are overrated and how to actually channel your energy when you’re working on raising capital for any type of transaction.

Natu:
So yeah, in this particular video, family offices broadly speaking, they’ve been a source and for those who aren’t aware, family office just means family investment office. It is a place where people manage the wealth of families that have become really wealthy from anything, from business and so on. Because they are just these companies that are just speaking in grassroots language here, cutting all the fluff, companies that manage the wealth on behalf of others. And you have these single family offices which manage the wealth of a single family. And then you have multifamily offices, which manage the wealth of multiple families. And it’s not to be confused with real estates, multifamily units or multifamily real estate properties. That’s not to be confused with that because many people in the sector talk about multifamily in those two senses.

Natu:
Five years ago, there was a lot of uncovered capital that was discovered in family offices. And then it really got really popular. But now what’s happening is that the problem with family offices and the problem with some of the language that some people use in the whole capital raising space is that people just throw on. So let’s split it into three parts.

Natu:
First part, people just throw on the word family office to everything and it has become a bit of a cliche now. There used to be a point where there was real capital that was uncovered in different wealth management scenarios and so on but the family office thing, anyone can become a family office because even if you’re managing the wealth of something and nothing, and what’s happening now is that if you work with people that call themselves a family office and so on, and then all of a sudden what you’re going to find is that many people started actually just sending you deals for you to work on. Because it’s like, I thought that they were the ones who were the ones who were, who wanted to give capital to other people. And so that’s one problem.

Natu:
So then the second problem that you find is that the language is not really consistent. The reason why the language isn’t consistent and the best way to know about the language to know what does the regulation say when it comes to this whole capital market space? Because if you look at the language, when it comes to what is a broker dealer, what is a mortgage brokerage, what is an accredited investment, and so on? Those types of languages, those types words are more consistent with reality because they have to by law. But then when it comes to words such as … even the word hedge fund and the word family office, these words are created words that people just use.

Natu:
One of the best ways to get a closer understanding of reality when it comes to all these terms is to understand what does the law say? And the law has different rules when it comes to funds. In America there is a registered investments fund. In America there is a registered investment advisor and there are different terms that outline what you can do and what types of companies exist.

Natu:
In Canada, you have the mutual funds, you have the exempt market dealers, you have the investment dealers and you have the different terms based on what the law says. If you follow what the law says, instead of just what the trends say, then it’s more productive.

Natu:
And then the third piece of hype that comes from the term family office, it’s the fact that they’re really flexible because a lot of them don’t have a mandate. But these ideas are great but a lot of these things are just broad assumptions that depend on the relationships you have.

Natu:
One thing that I’m noticing is that when private equity firms that have a clear mandate that say, “Oh, private equity firm invest in so-and-so types of companies” is very easy to communicate with them if they don’t know you, because they’re already out looking for a particular type of deal. So many, and I’m just speaking as a generality, but many private equity firms that have been mandated to deploy capital, or funds have been mandated to deploy capital, I think private equity is even better in my opinion, based on just what I’ve seen, then you’re able to get a response from people that don’t know you. But the thing with family offices, because many of them broadly speaking, the mandates are a bit looser and are more flexible then it’s hard to … you have to be more relational driven to entice them.

Natu:
If you just send them a deal and they don’t have a mandate and they just know to deploy capital into any particular sector, then it’s harder unless you already have a relationship with them or you meet them and so on. And that’s what a lot of good events can do. But my point is that whenever a private equity firm has the mandate to invest in a particular sector in particular, vertical and so on, then even if they don’t know you, they don’t really care about you, they just care if they get their jobs done, because you have research analysts looking for deals and they’ll take the credit and they’ll get their commission if they originated a deal that matches their mandate.

Natu:
And that’s not to say that family offices and private equity firms can’t mix. And that’s going back to the second problem of terminology, because you can have private equity firms that got their money from family offices. You can have hard money lenders that are family offices that got their money from family offices. You could have, anything can be a family office. It’s just a word.

Natu:
The point is that when they have a mandate to invest whenever mandated and commissioned to go out and invest into some sector or some type of assets, then even if they don’t know you, it’s easier to communicate with them because they’re looking for it anyway. But if they don’t have a mandate and they are just a family office, and it’s really broad, then it’s really hard to get something that they want to put money in.

Natu:
That’s just my experience. So with all these three things, just remember the first one. Family office, a bit overrated because it used to be really hard five years’ ago when people then realized that it was an underrated type of thing, but now everyone is calling themselves a family office. And that links into the second point. Family office, it’s funny because the language is, and then we can call themselves a family office, a family office as I said in the last points, it can be a fund, it can be a private equity firm. But if you just look at what the law says, the securities law says, people and reality, and the reality tends to conform to what the law says because people are scared. And so if you look at what type of fund it is, legally speaking, what type of investors they are legally speaking? Then it’s much easier to cut through all the noise.

Natu:
And then the last piece is mainly understanding if somebody already has a mandate for something, even if they don’t know you, then it’s easier to talk to them. But if somebody doesn’t have a mandate for something and they’re just somebody who is random and rich, and you don’t know what their mandate is, then from my experience and from the pragmatic stuff of what people do in reach out to people and so on, I see less results unless you go out and meet with them and make relationships with them. And then they may be able to just do you a favor. But unless you actually do something that somebody is mandated to do, why talk to you.

Natu:
So with this, thank you for watching this quick video. And hopefully it helps you see some of the underrated ness and overrated ness of either family offices, private equity firms. In case you couldn’t tell, I’m more of a fan of private equity firms, whether or not they’re a family office. And with this, thank you for watching this video and I’ll see you in the next one.