Family offices are still keen on direct deals but retreat from startup, early-stage investing
News Summary
According to a new Citi Private Bank survey, global family offices remain optimistic about their 2025 returns despite trade war turmoil and recession fears, with nearly half (45%) expecting 5% to 10% returns and over a third (38%) anticipating more than 10%. The majority (70%) of family offices made direct investments in private companies over the past 12 months, with 40% increasing their exposure. However, optimism for direct private equity investments has waned, with net bullish sentiment dropping from 36% in 2024 to 15%. The report indicates a diminished interest from family offices in early-stage fundraises, startups, and seed funding, while their preference for growth-stage (Series C or D) investments held steady. This decline was particularly sharp for North American family offices. They are becoming more selective, narrowing their focus to companies capable of drawing larger rounds. Furthermore, family offices are making opportunistic plays in secondaries, leveraging institutional investors' need for liquidity during an exit slowdown, with North American interest in secondaries notably increasing.
Background
Family offices are private companies that manage the wealth and investments for ultra-high-net-worth families. They typically possess a long-term investment horizon and flexible capital, positioning them uniquely compared to traditional institutional investors. In the current 2025 market environment, while the Trump administration's "America First" policies continue to influence global trade and geopolitical landscapes, technological innovation (especially Artificial Intelligence) and infrastructure upgrades remain key drivers of global economic growth. The private equity market, particularly direct investments, offers family offices avenues to participate in these themes and seek higher returns from illiquid assets.
In-Depth AI Insights
Why are family offices clearly retreating from early-stage and startup investing despite sustained overall enthusiasm for direct deals? - This shift reflects a more conservative capital allocation approach amidst current macroeconomic uncertainties. While family offices are optimistic about long-term themes like AI, the high risk and unpredictability of early-stage investments may conflict with their pursuit of specific return targets. - Family offices are likely seeking superior risk-adjusted returns, favoring later-stage growth companies with validated business models and clear growth trajectories over startups still searching for product-market fit. - This strategic adjustment could also be linked to the Trump administration's regulatory environment and anticipated economic volatility, prompting investors to mitigate risk by opting for later-stage private assets with shorter investment cycles and relatively better liquidity. What deeper market dynamics are implied by family offices increasing their investments in secondaries, particularly in North America? - This suggests family offices are acting as "liquidity providers," seizing opportunities as institutional investors (like university endowments and pension funds) seek to monetize illiquid assets during a slowdown in exits, potentially due to valuation adjustments or internal demands. - Family offices, with their stable cash flow from operating businesses, are well-positioned to exploit this market dislocation, acquiring assets at more attractive valuations and potentially securing controlling stakes for greater strategic influence. - The increased interest in secondaries in North America likely reflects the scale and sophistication of family wealth in the region, as well as their professional capability to seek value in a mature private market. What is the strategic significance of family offices focusing their investments on "specific themes" like AI, energy, and new infrastructure for their portfolio construction? - This signals a paradigm shift from traditional asset class or sector allocation to an investment approach based on long-term structural trends. Family offices recognize that these themes represent the core of economic growth for decades to come, and their value may not be fully captured in public markets. - By directly investing in these themes, family offices aim to gain early or direct exposure to disruptive technologies and critical economic pillars, thereby capturing alpha during the earlier stages of value creation. - This "stock picker's market" mindset means they are not merely relying on market beta but are actively seeking to identify and support high-potential private companies within specific growth areas through in-depth due diligence and active management, in response to future market uncertainties.