In December, a half-dozen of some of the richest families in the U.S., from agriculture to beverages, gathered in a conference room on the 10th floor of an office building in Miami.
This was not some cabal to rule the world. Instead, for an hour over coffee and bagels they listened to a dealmaker for billionaire brothers J. B. and Tony Pritzker talk about how to buy companies.
Wealthy families are embracing their inner Warren Buffett, albeit on a smaller scale. They used to hand most of their assets to managers to invest. Now, following the likes of Buffett, Michael Dell and Bill Gates, many are acting like private equity firms, buying large stakes in companies or acquiring them outright. Families can exert tighter control over their money, give the kids something to do and cut their deal fees.
But the trend has meant that private equity shops have been forced to scramble to make sure they don’t lose a critical source of money for their buyout funds. Blackstone Group LP assigned an executive to court wealthy families, and Carlyle Group LP and other private equity firms are allowing many to invest alongside them in deals.
“After a decade of direct investing we found that we actually saved millions, which were reinvested in companies and assets -- huge, huge savings,” said Chad Hagan, whose family built its wealth in private health-care and financial businesses.
In the past two years, deals have been struck by families tied to Bain Capital and the Pritzkers. In March, the Bechtel family of construction fame bought a controlling stake in a car dealership group in the Minneapolis area. It typically takes stakes of between $30 million and $100 million in businesses run by families.
Almost 70 percent of family offices engage in direct investing, according to an April survey of 80 offices by the Family Office Exchange. And in 2015 they outperformed buyout firms. Direct deals returned them 15 percent on average, the survey showed -- more than double private equity results that year.
By directly buying or taking a stake in a company, families can avoid paying fees to buyout firms, which typically charge a 2 percent annual management fee while keeping 20 percent of profits.