Private equity and family offices. Two different ways companies, families or other businesses can invest capital and support their growth and development. However, although the intent of both mentioned investment methods is similar, the strategy, planning and interests of investors differ significantly. For whom is investing through funds and family offices suitable and what are the benefits of these approaches? This was not only discussed by representatives of investment organizations who were guests of our seminar.
The June meeting in Deloitte on the topic of investing through classic private equity funds and family offices was called Private equity vs. Family office. However, the word "versus" in the title turned out to be not entirely accurate, as these ways of investing are so different in terms of the target group of investors, assets, sectors and strategies that investment organizations do not compete with each other and rather coexist. The guests of the seminar, Ondřej Vičar from the private equity investment group Genesis Capital and Jakub Dyba from the investment office R2G, which focuses on family offices, agreed on this. The partner of the meeting was the Czech Private Equity and Venture Capital Association and it took place within the NextGen initiative.
It is about investing in business-established companies that are not publicly traded. The potential investor invests his capital through the fund, thus acquiring his share in the company and, on the other hand, the given company can dispose of the obtained funds. After the agreed period, the share is sold back to the investor, with the return that the company was able to generate for the period.
In the Czech environment, this asset management model / investment method is sometimes referred to as "family offices". Families, resp. family groups entrust their assets to family organizations to manage them. Typically, these services are used by families with more capital, which requires better organization and a proactive approach in the form of investing so that they do not lose value and continue to grow.
Decision making and responsibility in choosing an investment
“Family office is a very private thing. Organizations engaged in services in this area receive from clients - families - their property, to which the owners have a specific, largely close relationship. And that's what you need to think about when dealing with it, "Jakub Dyba described working with family capital. He also added that abroad (compared to the Czech Republic) it is an institution that is used as an investment platform quite commonly.
In contrast, the area of private equity is a much better known concept in the Czech investment environment. According to Ondřej Vičar, it differs from family offices in a number of aspects specific to the organization. However, one distinguishing factor is characteristic: “The main difference between R2G and Genesis Capital, which we can observe in other organizations of this type, is decision making. Decision-making and access to it depend on who makes it. In the case of family offices, the client has the main decision-making word in all circumstances. On the other hand, in the case of equity, the responsibility lies with the intermediary organization that invests through the fund, essentially on behalf of the client. "
Where to invest? Technologies and pharmaceuticals are popular
The company should carefully consider where and how it wants to invest its capital. Not only decision-making, but also the method of investing itself is different for private equity and family offices. "In the case of family offices, investing is emotional, with each family having very individual needs. That is why, for example, our office does not prefer one specific sector that we would focus on and where we would operate with investments. We have an individual approach to each family, with the proviso that companies may participate in our proposed projects, but they also do not have to, or they may withdraw at some stage. These decisions are fully in their competence, "said Jakub Dyba, adding that in practice he often encounters a situation where a project that one of the families accepts is typically joined by the families of the other.
In the area of private equity, the way of thinking about the choice of projects is a bit different, but even in this case, organizations do not allow themselves to be limited by the choice of sectors. "Even in the area of private equity, it pays to focus on a specific asset regardless of the sector. In general, however, it can be said that currently the most valued companies are, for example, in the field of technology or pharmaceuticals. But paradoxically, we are also successful in the less 'mainstream' fields - it pays to invest in a smaller project and then let it grow. In short, it is not a mistake to go slightly against the flow, but always with balance, "Ondřej Vičar described private equity investment planning. Investors' expectations regarding economic developments are generally favorable.
Two worlds of private equity
While in the case of family offices, clients (ie the families themselves) have the final say, in the case of private equity, the imaginary helm is more in the hands of the company that mediates the investment. Among other things, it has the opportunity to decide whether to proactively engage in management in the case of projects in which it entrusts entrusted capital. "These are two worlds of private equity in which there is a never-ending debate. Is it better to give a hand and get actively involved in projects as an investor representative? Or, conversely, the best value arises when private equity is not involved in the project? Both approaches are possible and it is up to each company to consider the pros and cons in these cases, "explained Ondřej Vičar. He added that according to surveys and his own practical experience, he leans towards the second variant, ie the path of passive investment and non-interference in functioning processes.
At the end of the seminar, Ondřej Vičar and Jakub Dyba agreed that the protection of property and reputation is more important than rocket growth. And this applies both to companies providing private equity services or family offices, and to the activities of companies / projects in which they invest. According to Jakub Dyba, the conservative sectors are the most suitable for this investment perspective, as it offers relative stability and security even in a potential crisis, which is beneficial for all parties.
Businesses, families or other entities that want to invest and want to go the private equity or family offices should carefully examine the reputation of the companies to which they want to entrust their capital. And the same goes for investment organizations when looking for investment projects. In both cases, the portfolio and business history of the stakeholders is a good first indicator.
- Dušan Ševc, Financial Advisory Partner, Deloitte