Family Office Private Equity: The Best Pathway into Finance for Non-Traditional Candidates?
“Help! I’m a career changer / attended a non-target school / am 35 years old and want to change industries. How do I get into investment banking or private equity?”
My normal answer is: “Network a lot and think about other fields that have some overlap, such as search funds and real estate.”
But I might have another suggestion now: Apply to family offices.
Our reader today followed this strategy and used it to move from a pre-med and startup background into family office private equity:
From Medicine to Finance: Private Equity Recruiting 101
Q: Can you summarize your story for us?
A: Sure. I attended a target school, completed the pre-med track there, and planned to go into medicine after graduation.
But I always had an interest in finance as well, and I realized after graduation that I wasn’t too enthusiastic about medical school.
So, I decided to start my own restaurant-related small business, ran it for around a year, and then joined a startup to work on day-to-day operations and product management.
Although I spent most of my time in those areas, I also helped with business development and fundraising.
This whole time, I was taking the CFA exams to prove my knowledge of business and finance for future roles.
I networked by contacting alumni and cold emailing different firms, and eventually, I saw a posting for a “family office” job on my university’s job site.
I cold emailed the CIO to introduce myself, impressed him, went through interviews, and won an offer in the private equity team.
Q: Before we move on, can you explain what a “family office” is, and how it differs from traditional private equity firms and hedge funds?
A: The basic difference is that family offices do not raise capital from outside investors (Limited Partners or LPs).
Instead, they invest the assets of one family (single-family offices or SFOs), or sometimes multiple families and individuals (multi-family offices or MFOs).
There’s a huge variety of family offices; on one end, there are “institutional offices” such as Michael Dell’s that operate like large hedge funds, with internships, training, and very structured processes.
On the other end of the spectrum are smaller offices that invest in funds but not do any direct investing; they’re more like funds of funds.
Multi-family offices often operate more like funds of funds because each single family isn’t big enough to open its own office; recruiting and the job itself may be more similar to asset management.
Single-family offices frequently have the resources to build out big direct investment teams, and the more established SFOs often hire from investment banks and private equity firms.
The more money the family has, the more they can afford to hire talent from the top traditional finance firms.
Some family offices have operated private equity teams for a long time, and more offices have been building out their PE teams over the past decade (since the 2008 financial crisis).
Private equity works differently at each office, but a few key differences at mine include:
- Sources of Funds: Rather than raising money from LPs, we invest the annual cash flows of the family-owned business. We don’t allocate specific amounts of capital to different asset classes for diversification purposes; instead, we just look for great opportunities across all asset classes, and we focus on absolute returns.
- Investments: We make quite a few co-investments alongside mega-fund PE firms in leveraged buyouts, and we also do growth equity-type deals. We rarely lead leveraged buyouts, but we can lead other, smaller deals.
- Industries: We have invested across all industries, but we do have more expertise with family-owned businesses, so we tend to play a bigger role in those deals.
- Due Diligence: We prepare internal memos for investments, but we often rely on the due diligence findings of external partners instead of doing everything ourselves.
Q: You mentioned that more family offices are building out their direct investing teams. What’s driving that trend?
A: One big factor is that hedge fund performance has not been reflective of the traditional “2 and 20” fee structure.
Many family offices think the 2% management fee charged by traditional funds is absurd because they only want to pay for performance.
Also, many family offices dislike funds where GPs have little “skin in the game,” i.e., where they contribute little-to-nothing of their own money but still charge high fees.
Private equity funds have performed better than hedge funds, but many family offices still view management fees there as exorbitant.
Finally, more family offices want to be involved directly in the investment process instead of paying others to manage their money.
So, family offices have been poaching MDs and Partners from established firms by saying, “You’ll have a better life, more autonomy, and potentially higher compensation if you perform well. Also, we’re lightly regulated.”
From Cold Email to Job Offer: Recruiting at a Family Office Private Equity Team
Q: OK, thanks for explaining that.
Moving back to your story, what was the recruiting process like?
A: My team was brand new at the time, so the CIO was looking for “candidates with potential, who could be molded into top performers.”
They didn’t want candidates who had already been through extensive training elsewhere because the CIO wanted to shape them from the ground up.
So, my interviews were mostly behavioral (Why private equity, how I thought about investments, and how I had helped the startup raise capital).
They also asked me for an example model and investment memo, but it was a short and simple exercise since our team doesn’t do much deep due diligence.
At larger and more established family offices, the interview process is similar to the one at traditional PE firms.
At family offices that focus on indirect investing, expect something like the process in portfolio management or funds-of-funds interviews.
Q: So, what made you stand out?
Why did they pick you over everyone else?
A: The CIO liked my non-traditional background and how I had taken the initiative to find his contact information and cold email him.
I fit the profile they were seeking – my work experience was not in a traditional field of finance, but I still understood how investors think, and I had learned enough via the CFA exams to prove my interest.
Also, I fit the family’s culture well because my business and the startup I had joined were related to their industry.
“Fit” is even more important than in traditional PE because family offices have unique cultures, and people tend to stay in their jobs a much longer time.
Family Office Private Equity: A Day in the Life
Q: OK, great. What has the job been like so far?
A: Overall, I’ve enjoyed it a lot. The best parts are:
- No Sourcing – We have so many inbound deals that cold emailing and cold calling are unnecessary.
- Industry Exposure – We do prefer certain industries, but I’ve seen deals in almost all sectors so far.
- Deal Process Exposure – I work on all aspects of deals, from modeling to (some) due diligence to negotiating the final agreement.
- Lifestyle – There’s no “facetime” here, so if you’re done at 6 PM, you can go home. If there’s an active deal, we’ll work longer hours and come in on weekends, but outside of that, the hours are great.
Q: Can you expand on that last point? What’s an average day on the job like?
A: On an average day without an active deal, the hours are 9 AM – 6 PM.
I might arrive at 9, prepare for the day’s meetings, and review portfolio company news.
Meetings begin around 10. We meet existing portfolio companies, companies seeking funding, bankers pitching deals, and even companies that want to partner with our portfolio companies.
After a few hours of meetings, I work on models, term sheets, or due diligence for active deals. Much of this work takes place over the phone and email because the other parties are in different locations.
We also have internal investment committee meetings in the afternoon, but the team is so small that the process is still informal.
Our involvement with a portfolio company depends heavily on the company’s industry – we’ll be more hands-on with a company that’s complementary to the family business, but with others, we’ll just request quarterly updates and provide occasional help.
Q: What is the compensation like?
A: I didn’t come from an investment banking background, so my compensation is lower than pay for post-IB Private Equity Associates at traditional firms.
It’s average pay for “Investment Analysts,” i.e., students that join buy-side firms directly after university, in this area.
But compensation varies widely at family offices, and if the office is more like a traditional PE firm or hedge fund, the compensation will be closer as well (and the hours will be worse).
At many family offices, there are far more MDs and senior professionals than junior people.
Their compensation is tied heavily to investment performance, and they may not even earn much of a base salary.
Also, they may have to contribute some of their own money to each deal to ensure alignment with the family office.
Q: Thanks for explaining that. How easy or difficult is it to advance?
A: It tends to be harder than in traditional IB/PE because once people start working at a family office, they can stay there for a long time.
Turnover is low because they get a good lifestyle, more autonomy, and more interesting work.
It’s similar to the difficulty of advancing in corporate development: Few ex-bankers want to leave such a good job.
On the other hand, if you do a great job and establish a good relationship with the family, you’ll get many exit opportunities since family offices tend to be deeply connected with PE/VC funds, portfolio companies, and other family offices and successful entrepreneurs.
Q: Is there anything else you want to mention about family offices that we haven’t already discussed?
A: Family offices are becoming more popular because of increased regulation and lower pay at traditional finance firms.
Overall, the most senior team members – people who join at the CIO level – tend to get the best deals.
Joining a family office private equity team as a junior team member makes the most sense if:
- You’re from a non-traditional background and you want to work in private equity.
- You’re from an IB/PE background and you want to keep working on deals, but you want a better lifestyle.
These points apply more to the smaller/newer family offices and less to the established, institutionalized ones.
Q: Great. Thanks for that summary, and for your time.
A: My pleasure.
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Brian – I’ve been in TAS for a year now at a MM acc firm after having moved from internal audit. Concurrently I just finished my part time online MS Finance in May, where the plan was to use the TAS and MSF for another crack at the IB analyst role so I’d have a shot at PE in the future. However, I didn’t account for time and age and life in my plans way back when. If the end goal is PE I’m wondering if you think it’s worth getting my CPA (CFO and rep down the line) before going to a family office, or forego the CPA and go to banking and then MM PE. Granted I may not even be able to recruit for a PE firm and get stuck in banking with no exit ops due to my lack of pedigree out of the gate. State school for undergrad, non target but private for grad. End goal is a MM PE firm, would going to a family office right now be the move? (if given the choice, one likely available) or do I need to go the traditional banking to PE route still?
I think it’ll be hard to break into MM PE after family office due to lack of rep but at least ill have broken into private equity and maybe another family office will be on the horizon at least. Not sure if it’s worth the IB years just to not get into PE. Plus I definitely plan on starting another business. (started one and sold it for a small sum) plan on doing it again.
I don’t think a CPA is worth it for a PE role. No one will care, and they will assume you already know accounting quite well from the audit/TAS experience.
I don’t know your exact # of years of work experience, but the best plan usually is to get into banking ASAP and then aim for PE roles.
I don’t think a family office would make it much easier to get into an MM PE firm vs. an IB role. In fact, it might be harder because it’s not the typical path (even though they are related). So it’s probably only worth it if you have an outstanding offer and don’t want to spend more time and take more risk by pursuing IB roles (really depends on how much full-time experience you have).
Thanks for the reply Brian, to add additional context I’ve been out of undergrad for 2 years now – 1 in internal audit and 1 in TAS, (2 years to complete online masters). So is it worth it if I’m able to interview and snag a family office role in the next few months? Or do you think I’ll just have to bite the bullet and go to banking given that I’m still so new to the work force? Another thing worth mentioning is I’m about to turn 26 (extra time in undergrad) and just worried about the impact banking will have on me because I actually know what I’ll be in for…Yeah family office may be the easy way out but I also feel like it may make sense given my age now??
If your main goal is to win a buy-side/investing role without crazy hours/stress first, you should join the family office. I think it’s not as good as IB for setting you up for future PE roles, but it is still possible to win something in PE coming from a family office (but likely at smaller funds that use off-cycle recruiting).
Any idea on exit opps for a family office PE analyst?
I would imagine the lack of brand name for many would be an issue
Not sure about that one, but yes, I imagine the brand name would be an issue. I’d imagine you could probably go to smaller PE funds, corporate development, growth equity, and maybe some hedge funds. But larger companies or finance firms might be difficult because the field is relatively new and most firms are not well-known yet.
Hi, Brian, I enjoyed reading this interview a lot, it’s very helpful. I’m similar to this reader, keen for finance jobs but from a very different background, been through startups… etc., and I’ve been searching the way into this sector. Apart from networking, I feel like the best chance would be talking to specialised recruiters. I’ve seen a couple located in the U.K., any chance you know some international or Asia focused ones? Much appreciate it if you could give some guidance. Otherwise, I’m really glad you wrote this article anyway.
I don’t know of any offhand, as we don’t really specialize in recruiters/job placements here but rather on education and training candidates to perform better in interviews and on the job. I’m not sure I would recommend speaking with recruiters if you’re from a very different background, as they tend to want super-specific profiles and are usually not open to people who don’t match up exactly. Networking is probably your best option.
What is the best time to send an email to HR? In terms of which day of the week and time of day works best to get a response.
Middle of the week, middle of the day (say, 1 – 3 PM).
this was a fascinating interview, thanks brian.
do you foresee a time when family offices might be viewed as preferable to traditional PE and hedge funds? the idea of light regulation seems very interesting.
Thanks! Yes, I think family offices might eventually be viewed as better than traditional PE firms and hedge funds, especially if regulations ever increase or more of the top senior people at traditional firms move over. Plus, the rich keep getting richer… so the AUM at family offices will only increase.