Investment firms managing the wealth of ultra-high-net-worth families have significantly reduced their direct investment activities, even as broader deal-making on Wall Street shows signs of recovery. Data indicates a sharp decline in the number of direct deals, reflecting a cautious approach in the current economic climate.
According to figures from the private wealth platform Fintrx, family offices completed just 54 direct investments in September. This represents a 46% decrease compared to the same period in the previous year, highlighting a strategic pullback from the market.
Key Takeaways
- Direct investments by family offices fell by 46% year-over-year in September, with only 54 deals completed.
- Despite the slowdown, billionaire family offices continue to participate in large funding rounds for technology and healthcare startups.
- Some family offices are making opportunistic acquisitions, buying assets from private equity firms nearing the end of their fund cycles.
- A growing trend involves integrating second-generation family members into investment decisions, shifting focus to align with their interests and ventures.
A Contraction in Direct Deal-Making
The landscape for direct investments by the world's wealthiest families has shifted. While Wall Street has seen a rebound in mergers and acquisitions, the private investment arms of these families, known as family offices, are demonstrating considerable restraint.
The 46% year-over-year drop in deal volume for September points to a broader trend of risk aversion. This cautious stance suggests that family offices are waiting for more stable market conditions before committing significant capital to new ventures.
Investment by the Numbers
Data from Fintrx shows a clear trend: family offices made only 54 direct investments in September. This is a significant reduction from the previous year and contrasts with the more optimistic activity seen in public markets.
Exceptions for High-Growth Sectors
Despite the overall slowdown, certain sectors continue to attract substantial capital from prominent billionaire investors. High-growth industries like artificial intelligence and healthcare remain top priorities, especially for startups with strong leadership and disruptive potential.
Major Funding for AI and Robotics
One notable exception to the cautious trend was a major investment in the AI sector. Periodic Labs, a startup founded by former researchers from OpenAI and DeepMind, secured a $300 million seed round. The company aims to use AI-powered robots to automate scientific lab experiments.
This significant funding round included participation from investment firms linked to Amazon founder Jeff Bezos and former Google CEO Eric Schmidt. Their involvement signals continued confidence among top tech investors in the long-term potential of artificial intelligence.
Healthcare Remains a Priority
The healthcare and biotech sectors also continue to draw interest. Harbor Health, a group of primary-care clinics, successfully raised $130 million. The funding round was supported by high-profile investors including Michael Dell’s DFO Management, Breyer Capital, and Martin Ventures.
A portion of the funds will be used to expand Harbor Health's insurance products and to open additional clinic locations. The startup's chief medical officer, Dr. Clay Johnston, has a previous connection to Dell, having served as the dean of the Dell Medical School at the University of Texas at Austin.
Opportunistic Acquisitions and Family Strategy
The current market slowdown has created unique opportunities for family offices with available capital. Some are stepping in to acquire assets from private equity funds that are under pressure to sell, a strategy that allows them to purchase established businesses at potentially favorable terms.
The Mitchell Family Office Approach
Mark Mitchell, who founded the Mitchell Family Office (MFO) in 2015, exemplifies this opportunistic approach. After selling his home healthcare business, U.S. Medical Management, for a total of $325 million, he established MFO to manage his family's wealth and investments.
In September, MFO acquired the luxury beauty retailer Cos Bar for an undisclosed sum. According to Mitchell, the deal came together quickly, with his offer being accepted within a month. The previous owner, a private equity firm, had held Cos Bar for nine years and needed to exit the investment as it was the final asset in its fund.
"I would say the last few investments we’ve made are less, let’s say ‘patriarchal Mark Mitchell decisions’ and more second-generation decisions."
While Mitchell's background is in healthcare, MFO is increasingly diversifying its portfolio to align with the interests of the next generation. This strategy serves a dual purpose: expanding into new industries while engaging his children in the family business.
Integrating the Next Generation
A key aspect of Mitchell's strategy for Cos Bar involves synergy with another family venture. The retailer's high-end stores will be used to showcase AI-powered smart mirrors developed by Swan Beauty, a startup founded by his wife, Colby. These mirrors, which retail for $695, analyze a user's skin to recommend products and allow for virtual makeup trials.
Mitchell, 60, has five children, and his adult son and daughter have already launched their own businesses—an automotive company and a clothing line, respectively—which are owned by MFO. He believes that this direct involvement is crucial for motivating the next generation.
"My son is the first one in and the last one to leave every day... Mine are truly grinding, which also sets a good example for their younger siblings," Mitchell stated, noting that this level of dedication can be uncommon among the children of wealthy families.
This multi-generational approach extends beyond traditional business. In April, Mitchell purchased the women's soccer team AFC Toronto. What began as a hobby has evolved into a family affair, with his daughter considering a similar purchase and his younger sons taking up the sport.
"Going back to the multigenerational thing, it’s been wonderful for the family to focus on and really take an interest in this," he said. This illustrates a broader shift where family office investments are not just about financial returns but also about building a shared legacy and engaging family members across generations.