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Family Offices Play Powerful New Role in Private Equity


5/31/16

Family offices are getting serious about private equity. They are steadily building their own buyout operations and making direct investments in private companies, often competing with traditional private equity firms in the process.

Perhaps no family office better typifies this trend than the Pritzker Group, headed by Anthony Pritzker and J.B. Pritzker, brothers and heirs to the Hyatt hotel chain fortune. The Pritzker Group has been investing family money directly into companies for 14 years, but mostly on an informal basis. It wasn’t until 2012 that the Pritzker’s decided to truly focus their energies on private equity and staff up their operations. They hired PE professional Paul Carbone, formerly of Robert W Baird’s private equity arm, to lead their PE efforts, and added other industry experts from Blackstone and Equity Group Investments.

Since then, the family has acquired seven companies in just four years, including LBP Manufacturing, maker of the coffee cup sleeves used to prevent Starbucks’ customers from burning their hands, and most recently PLZ Aeroscience, a manufacturer of aerosol cans. The Pritzker Group is not alone. PitchBook, a research and data collection firm, reports a substantial increase in direct investments by family offices. It recorded 97 such deals in the U.S. in the past five years, compared to 56 in the previous five. And these figures are likely a fraction of the real total given that family offices tend not to share information about their transaction activity. What’s more, a 2014 survey by McNally Capital, which helps wealthy families manage their investments, found that 77% of families preferred direct investments into companies rather than into private equity funds. That’s up from 59% in 2010. The McNally study also found that, in 2014, 37% of family offices had at least three people in their office specifically dedicated to making direct investments, up from just 22% in 2010.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information
contained in this publication without obtaining specifi c professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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