A review: Delio’s direct investments in family offices roundtable

In line with our ongoing commitment to bringing together our community, our most recent roundtable event involved a group of individuals who currently offer, or plan to offer, direct investments to their family office clients. We had representatives from some of the leading banks and multi-family offices across the UK, Europe, Middle East and Asia and the diversity of the panel was telling – not just in geographical location but in the maturity of their proposition.

Some of the global banks attending have been running direct investment offerings for many years, there were a few panellists who had recently created an offering and even a couple who were just in the process of designing a new proposition ready for launch. The range of firms and proposition evolution in itself is a key story that is borne out by the panel: the demand for direct investment opportunities is increasing. In addition, the diversity of stage also led to a very engaging discussion.

Positioning direct investments inside a private bank: should it be a profit centre or a cost centre?

We kicked off the discussion by tackling a key question around the nature and purpose of a proposition.

All of the attendees with a direct investments offering concurred that a proposition had helped them win a client and was key in engaging a prospect; often being the main reason they opened an account in the first place. Banks can invest years of unsuccessful effort in an attempt to build those relationships with clients; however, the right deal often acts as the catalyst for fruitful ongoing conversations which then becomes the foundation of their partnership.

On that basis, the panel agreed that this could easily lead to direct investments being viewed as a marketing tool in their own right, however, attitudes are changing and many are moving away from this arguably reductionist viewpoint, instead seeing direct investments as a clear revenue driver. This is a marked change from when we conducted our first research report focused on the rise of the Investment Club back in 2019.

One of the panel commented on how their actual ROA was leading toward 400-500bps by the time they had factored in the carry they had structured into their offering. This demonstrates how it can generate meaningful revenue if executed well. Even those who were more focused on charging one-off execution fees were clear that rising demand and transaction volumes ensured a successful model.

To Advise or Not?

It was clear from the panel that the economic model is not something that can be viewed in isolation: how you charge has a clear interplay with regulatory considerations and ultimately the nature of the proposition. These trade-offs were certainly on the mind of those currently looking at how to build and scale new propositions.

None of the panel currently offered private markets in discretionary mandates but there was a range of introduction-only, execution-only and advisory offerings with some debate on this topic.

Many more than expected of the panel were now offering advice on direct investments. There was a growing sentiment that, in order to manage the reputational risk, enhanced curation and due diligence are necessary and so now is the time to formalise the processes around these.

Those with advised offerings also saw the demand for their positioning increase over time. Whilst the group was at pains to stress that the “next-generation” is not all as young as many articles would leave you to believe and are inclusive of those in their 60s, the “next-gen” does require more advice. All panellists agreed that second and third-generation investors do not have the business experience of the patriarchs and matriarchs and are increasingly seeking guidance. There was, however, some admission among the panel that they may need to sharpen their own advisory skills in future, particularly when it comes to sustainable and impact investments – something everyone is seeing an increasing demand for as wealth gets passed down.

That is not to say that other models do not work. Many organisations see the distribution led placement model as a better fit with the risk appetite of their institution – offering a non-advised, introduction-only offering where the family office clients make up their own decisions. This helps manage the risk of the proposition for many institutions but also is typically more prevalent in institutions with both investment banking and wealth management divisions.

Future Sessions

The discussion also covered areas such as whether there was value in the network itself between clients (only one participant mentioned an example of a client investing in another client’s business) and the nature of internal vs. external deal flow (those wealth managers that were part of private banks were surprisingly most keen to ensure that they source credible external deal flow) and we will delve further into these as we bring the group together later in the year.

Tokenisation, digital assets and the future of private markets were high on the group’s agenda, however, the next session will first focus on scaling propositions to family offices across jurisdictions. We look forward to continuing to convene this group, welcome new participants to the discussion and help serve as a conduit for sharing knowledge and ideas.