The $10 Trillion Family Office Space is at a Tipping Point – Here's What it Means for Investors

Change is brewing in the world of family offices. The excesses of public markets and record highs of 2021 did not last, giving way to war, uncertainty, and supply chain concerns. Private capital stepped in to fill the gap, with many companies choosing to delay or defer IPOs to raise money in private markets instead. However, venture returns for family offices have been minimal since COVID-19.?

Ron Diamond is a longtime investor and entrepreneur, representing over 100 family offices ranging from $250 million to $30 billion in size. At the Keiretsu Forum Investor Expo 2023, Ron shared insights from the family office landscape and spoke about trends and opportunities in the space.

Venturing Into New Territory

“It is my belief that venture capital is by far the hardest asset class to invest in if you’re not an expert”, says Ron.?

Before the coronavirus struck, a lot of family offices chose to bypass venture capital and private equity firms. It made sense in an intuitive albeit myopic way. Their reasoning was — if we can make money ourselves, why should we pay the 2 and 20% fees to venture capital firms?

However, it helps to remember that at the time, right before COVID-19, whatever you invested in went up — be it private equity, venture capital, real estate, credit, cryptocurrencies, or stocks. That ship has sailed. Ron believes family offices are now at a tipping point.?

Carta did a study that reported that VC Series B rounds were down 50% in Q1 2023 compared to a year earlier. Series C rounds were similarly affected. And family offices that were not venture capitalists got crushed.??

Family offices have lost money in the venture. And when one loses money, it is an impetus to reevaluate how one invests. Whether it is tech or real estate, many family offices are refocusing their energies on their source of wealth and domains of expertise. Everything else is on track to being outsourced. Ron emphasizes that unless someone is doing venture full-time and it’s in their blood, they should not be doing venture at all. Family offices are realizing this fact.?

They have two potential pathways. One way is to hire two or three young wealth managers and entrepreneurs and pay them $200,000 a year. The other is to outsource and pay nothing. To funds and investors, this results in a tremendous opportunity to tap into family offices and raise money.?

World-changing Opportunities

The numbers are mind-boggling. Ron says there is roughly $10 trillion sitting with family offices. Even more staggeringly, $84 trillion will come downstream from the Baby Boomers to the next generation in 20 years. The next gen cares about technology, transformative things, saving the planet and impact investing — ideas that matter to the venture industry as well.?

The biggest advantage family offices have is patient capital. Unlike other institutions that demand shorter horizons when it comes to returns and ask that you flip money every 3-5 years, family offices want to see you succeed but are okay with compounding.?

Ron sees this as a crucial time for people looking to raise money via family offices for their venture fund. He advises that people must try and develop relationships with at least one or two family offices. If someone is already working with a family office, they could research their sector and help them make new connections. One of the first things Ron does is not to bring up a real estate deal or venture deal to a family office but to set up an introduction with other family offices in their sphere. While it does not benefit him directly, family offices appreciate it. As Ron says. “We live in a society where everybody wants to receive. But you need to ‘give’ first."

Why Trust Matters

When raising money or pitching, the standard fare is to talk about how one has produced fantastic results in the past. But the first thing a family office wants to know before they invest in your fund is not your track record. They want to know if you can be trusted. Metrics like drawdowns and past performances are evaluated later. Trust is paramount.?Almost 70% of all family offices started only after 2000. Half of those came up after 2008’s crash. This change did not happen because family offices suddenly wanted to manage money. It was the result of a backlash and mistrust against Wall Street.?

However, the way family offices find their deals is a bit unusual. They might go to their Country Club and run into supposedly 'smart' people. An individual who’s made tons of money on real estate might approach a family office and say, "Let's invest in this tech venture," and the family office could tag along!?

This lack of a structure in accessing deal flow, lack of trust and the reevaluation of strategy shows us that the family office world is siloed, fragmented and ‘broken’. Ron believes, that in the next three to five years, a lot of these family offices will reach out and start investing in venture capital — hands down the hardest investment class. Many of these family offices already know how hard venture is; a realization that evades most in a bull market. By partnering with them, investors could create better outcomes for themselves and the companies they back.

As his key takeaway, Ron would like investors to look into the world of family offices, find out more about them, and develop trusting relationships because such a synthesis can prove to be a game changer not only for innovation and wealth creation but for the future of the world.

About the Speaker

Longtime investor and entrepreneur Ronald Diamond is the Founder and Chairman of Diamond Wealth . He represents over 100 Family Offices ranging in size from $250 million to $30 billion. Diamond Wealth invests in private markets (private equity, venture capital, real estate). In addition, Diamond Wealth has divisions that focus on philanthropy, wealth transfer, investment banking, social impact, and governance.

Ronald serves on the Advisory Board of 10 privately held companies and acts as Chairman for 4 of them. Ronald is also the Chair of two TIGER 21 chapters in Chicago and Chairs a newly created Family Office Group for TIGER 21. He is the past Chairman of the Advisory Board for the Disruptive Technology and Digital City’s Program at Stanford University and taught classes in the Entrepreneur Program at Stanford. A frequent speaker at Family Office and Alternative Investment Conferences, Diamond has spoken at over 100 conferences around the globe.

To watch Ron’s entire keynote on Keiretsu Forum TV visit: https://keiretsuforum.tv/keynote-ronald-diamond-day-1/

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