What is a Club Deal?

A family office club deal refers to a co-investment scenario where multiple family offices (wealth management and investment firms that cater specifically to high net worth individuals or families) come together to collectively invest in a particular opportunity, often bypassing traditional private equity or venture capital funds. The term “club deal” implies that a group or “club” of investors is collaborating on the investment.

A few key features and benefits of family office club deals include:

● Direct Investment: Family office club deals often focus on direct investments into private companies, real estate projects, or other tangible assets. This enables them to bypass the fees associated with investing in private equity or venture capital.

● Shared Due Diligence: Multiple family offices pooling their resources can share the responsibility and costs of due diligence, leveraging each office’s expertise and insights.

● Negotiation Power: Combined capital from several family office provides stronger negotiation leverage when discussing terms with target companies or projects.

● Aligned Interests: Unlike some private equity funds, where the management fee and carried interest structure might sometimes misalign interests, family offices in a club deal scenario often have better aligned objectives and horizons, since they’re all investing their own capital.

● Flexibility: Family office club deals offer a high degree of flexibility in terms of deal structure, terms and exit strategy, allowing participants to tailor the investment to their preferences.

● Knowledge and Network Sharing: Family office collaborating on investments can share knowledge, industry insights, and valuable connections, providing more than just financial capital to the target company or project.

● Lower Fees: By co-investing and bypassing traditional funds, family offices can often avoid the typical “2 and 20” fee structure (2% management fee and 20% performance fee) commonly charged by private equity and hedge funds.

It’s important to note that while family office club deals offer numerous advantages, they also come with challenges, such as ensuring aligned interests among all participants, managing potential conflicts, and coordinating decision-making among multiple entities. Effective communication and clear governance structures are essential for the success of such collaborative investments.