Direct, co-invest, or fund: how families are choosing

The shift towards direct investing is real, but it is not the shift most managers think it is. The interesting number is how those direct deals are being sourced.

The direct investing story has been told for several years: families building in-house teams, going around funds, keeping the fees. It is broadly true and, taken at face value, misleading for anyone raising a fund.

What the numbers describe

Value Add VC reports that around 70 per cent of family offices now make direct private investments, and that roughly 83 per cent of those deals are structured as co-investments. That second figure is the one worth sitting with. Most family direct investing is not origination — it is participation alongside a fund that has already sourced and diligenced the opportunity.

Read that way, the trend looks less like disintermediation and more like a change in how the relationship is structured. Building a team capable of originating proprietary deal flow is expensive and difficult to sustain. Investing alongside managers a family already trusts captures much of the economics without carrying the sourcing burden.

The allocation has not moved the way it is described

Recent coverage suggests families now split new capital roughly evenly between direct deals and fund commitments, and in some cases have tilted back towards funds after several years of moving the other way. Compare that with 2021, when direct allocations meaningfully outweighed fund commitments, and the picture is a partial reversion rather than a one-way departure.

This is what one would expect. A concentrated book of direct positions demands monitoring capacity that few offices below a certain scale can sustain, and the burden becomes obvious a few years in rather than at the point of investment.

What it means for a manager raising now

Co-investment is increasingly the entry point rather than the reward. A family that is not ready to commit to a blind pool will frequently look at a single deal, and that deal is an audition conducted on real work rather than on a deck.

It follows that a manager unwilling or structurally unable to offer co-investment is competing for a narrowing share of family capital. It also follows that co-investment should be treated as the beginning of a fund conversation rather than a substitute for one — which requires being deliberate about which deals are offered, and to whom.