Family offices have been increasing private equity exposure for two decades, and the reasons are structural rather than fashionable: long horizons, no redemption pressure from third party clients, and a tolerance for illiquidity that most pooled vehicles cannot match.
What follows is factual background on how the asset class is accessed and governed. It is not advice, and it is not a recommendation of any strategy or manager. Private equity is illiquid, long dated, and capable of losing capital.
The four access routes
Primary fund commitments. You commit capital to a blind pool with a defined strategy and vintage. The manager calls capital over an investment period and distributes as assets are realised. You get diversification and a professional team, and you pay for both.
Co-investment. You invest directly into a single company alongside a sponsor, usually with reduced or no fees. It concentrates risk into one asset and compresses your decision window, often to a few weeks, so it rewards offices that have prepared their process in advance.
Direct investment. You originate, price, negotiate and govern the position yourself. This demands real internal capability, an operating network, and the willingness to sit on boards and follow money through later rounds.
Secondaries. You buy existing fund interests or company positions from another holder. Entry is later in the asset''s life, the J-curve is shorter, and the diligence problem shifts from forecasting to reading someone else''s portfolio accurately.
Fees and the structures behind them
The headline still tends to be a management fee on committed capital during the investment period, then on invested capital afterwards, plus carried interest above a hurdle, usually subject to a catch-up. Two details matter more than the headline numbers.
- What the fee base is. A fee on commitments behaves very differently from a fee on net invested capital, particularly in a slow deployment environment.
- Whether carry is whole-of-fund or deal-by-deal. Whole-of-fund with a clawback protects the investor. Deal-by-deal accelerates the manager.
Beyond that, look at transaction and monitoring fees charged to portfolio companies and how much of that is offset against management fees, at the GP commitment and whether it is cash rather than fee waiver, and at the key person and no-fault divorce provisions.
Cash flow behaviour, which surprises new allocators
Committed capital is not invested capital. Draw-downs arrive on short notice over several years, distributions arrive unpredictably, and net cash flow is negative early. Offices that commit their entire target allocation in one vintage usually discover two problems: they are concentrated in a single entry environment, and they hold too much cash waiting for calls.
The conventional response is a commitment pacing plan across vintages, with a liquidity buffer sized to meet calls in a stressed period, and an explicit policy on whether unfunded commitments are covered by liquid assets or by a credit line.
Governance questions family offices work through
- What is the target allocation to private markets, and how is it measured, on committed or invested capital?
- Who has authority to approve a commitment, and at what size does it escalate?
- How are co-investments assessed when the window is short, and who can say no?
- What conflicts exist where the family''s operating business overlaps with a target sector?
- How are valuations reviewed between reporting dates, and who challenges them?
- What reporting cadence is needed for the family, as distinct from what the manager provides?
Diligence that goes beyond the deck
For funds, the substantive work is attribution: which partners drove which outcomes, whether the team that produced the track record is the team investing the next fund, how much of the return came from leverage or multiple expansion rather than operational change, and how the loss-making positions were handled.
For direct deals and co-investments the work is company specific: quality of revenue, customer concentration, working capital behaviour, the cap table including options and convertibles, the shape of the management incentive plan, and what happens in a downside case where the next round is priced flat.
For secondaries the pricing discussion is a valuation discussion. You are buying someone else''s marks, and the discount is only attractive if the marks are right.
Reporting and valuation, honestly
Private equity valuations are periodic estimates, not prices. Reported volatility is lower than the underlying economic volatility, which is comfortable and can be misleading in an asset allocation model. Offices that hold both public and private equity often adjust for this rather than treating reported figures as directly comparable.
Where Sustainable Wealth Group sits
We are private markets infrastructure. We work with companies raising capital, and we operate an investor community that receives factual information about opportunities where the relevant exemptions apply. We do not provide investment advice, we do not manage discretionary portfolios, and nothing here is a recommendation.
Sustainable Wealth Group is not authorised or regulated by the Financial Conduct Authority. Private market investments are illiquid and place capital at risk. Take independent advice before making an investment decision.
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