What happens when the focus of the family business becomes … other businesses?
After building wealth through their primary enterprise, a growing number of family offices are now looking to invest directly in other businesses. Kellogg’s Matt Allen and Jose Liberti have labeled this approach “legacy equity”—an investment model that resembles private equity but with important differences.
Family offices—essentially, private entities set up to manage the assets of one or more wealthy families—are enjoying a boom period. By 2030, one group projects there may be more than 10,000 family offices controlling $9.5 trillion in wealth.
While not all this wealth will be used for direct equity investment—family-office portfolios often span multiple asset classes—family offices are rapidly becoming a force in capital markets.
“It’s safe to say family-office assets under management are going to grow tremendously over the next decade or two,” says Allen, the John L. Ward Clinical Professor of Family Enterprises and executive director of the Ward Center for Family Enterprises.
Family offices have long invested in private equity, and as they’ve grown in sophistication, many have taken to co-investing with private-equity firms. Now, some are also building their own teams capable of sourcing, evaluating, and managing investments directly.
“More recently, what we’re seeing is families saying, ‘You know, we’ve got the wealth, and we’ve got the experience. Let’s create our own investment company and follow a private-equity-like model, but we’ll do it on our terms,’” explains Allen.
Those terms, say Allen and Liberti, The Joseph Jr. and Carole Levy Chair in Entrepreneurship and a clinical professor of finance, combine professional investment capabilities, flexibility over ownership horizons, and, most importantly, a purpose extending across generations.
For some families, that purpose may be philanthropy or social causes. For others, it could mean preserving a tradition of building businesses, developing capable future owners, or sustaining the family’s ability to invest and create value across generations.
“These families define returns differently,” Liberti says.
With potentially trillions of dollars of capital at stake, here’s what entrepreneurs, investment professionals, and family offices themselves need to know about legacy equity.
The family purpose
One key distinction between legacy equity and other sources of capital, Allen and Liberti say, is the family’s purpose.
A sense of purpose connects the founders’ entrepreneurship and values to present needs and the opportunities a family hopes to create for future generations. For some families, that includes an explicit ambition to contribute to a “better world.” For others, it shows up in the businesses they choose to own and how they run them.
“It’s money that comes from purpose going to purpose,” Allen says. “[Family offices] are interested in the potential impact of the idea. They’re interested in how that idea reflects their own legacy. They’re interested in how employees will be impacted, how the community might be impacted, even the results of the product.”
Take Builders Vision, the impact-investing and philanthropy platform of Lukas Walton, a member of Walmart’s founding family. Walton has chosen to focus on sustainability by investing in agriculture, oceans, and renewable energy. His goal is to use his wealth to “de-risk” investments in those sectors.
But philanthropy and sustainability are not the only purpose legacy equity can have. A family can also continue its entrepreneurial tradition through commercially focused business ownership. Their objectives might include financial returns alongside continuity, entrepreneurial opportunity, intergenerational horizons, or concern for employees or communities.
Consider Carlson Private Capital Partners, which the Carlson family launched in 2018 to invest in and help grow other businesses. The platform pairs family capital with experienced investment professionals and a flexible ownership horizon. Its stated goals include strong business performance alongside support for employees, communities, and the legacies of the businesses it backs. The example illustrates how a family can carry its entrepreneurial tradition into new companies, preserving a commitment to building businesses as its investments evolve.
Flexible relationships benefit entrepreneurs
The unique structure of family offices and legacy equity can offer flexibility in how investment relationships develop. For entrepreneurs, that means the legacy-equity approach may mean greater flexibility over investment duration and transaction structure.
A family-backed platform without a fixed fund life may be able to support a business through a longer period of development, reinvestment, or transition. That flexibility can matter when an attractive opportunity requires more time.
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For example, Pritzker Group touts its “permanent capital base” as bringing “alignment with management teams, efficient decision-making, and flexible transaction structures.” Family-backed investment platforms that do not face outside investors’ redemption demands or a fixed fund life can have greater discretion over when to sell.
“In some cases, family offices are filling gaps that private equity won’t necessarily fill,” Allen says.
Family offices founded by entrepreneurs who were themselves successful in running a company can also offer portfolio companies expertise, networking connections, and management advice along with capital.
Consider India’s Premji Invest. The single-family office of Wipro founder Azim Premji says its “evergreen capital structure” lets it stay with companies from inception to public offering and beyond, without the pressure of a traditional fund timeline.
It all sounds like a good deal for entrepreneurs. But there are still things to watch out for, Liberti cautions.
This flexibility does not necessarily mean cheaper capital, softer terms, or less-demanding performance expectations. A longer horizon can support ambitious investment plans while still requiring rigorous underwriting, clear milestones, and accountability.
And if the family office starts accepting outside capital, that can change the arrangement. New investors may introduce return targets, reporting obligations, liquidity expectations, or additional decision rights. How much those obligations alter a family’s approach depends on the terms of the capital and the governance of the investment platform.
“Entrepreneurs seeking out family offices should still examine the prospective partner carefully,” Liberti says. “Who makes decisions, what support the team can provide, how future funding will be handled, and what happens if the family’s priorities change.”
Welcome to the family
When family offices look into directly investing in businesses, they need expertise. Investment capital may be abundant, but building a team that can source opportunities, conduct diligence, oversee businesses, and make difficult capital-allocation decisions is a separate challenge.
Fortunately, investment professionals are starting to take notice of career opportunities in this space. While ten years ago, business-school students would not ask Allen about investment roles in family offices, some students are now focusing on the industry.
Liberti also sees interest from candidates with the familiar “two plus two” background—two years in investment banking and two years in private equity—who are considering active investment roles within family offices.
For professionals with experience at investment firms, the analytical work and investment processes of family offices may feel familiar. Professional capabilities can resemble those of a private-equity firm even when the owners’ objectives and time horizons differ.
But the ownership environment can require adjustment, particularly when family objectives influence investment selection, holding periods, and decisions about reinvestment or distributions.
“As an employee, you’ve got to be ready for an environment where you’re balancing the needs of the family with the science of investment,” Allen says.
Protecting the legacy
Ultimately, the success of legacy equity rests on bringing a clear family purpose and professional investment capabilities together with governance that holds owners and managers accountable.
Families can use their flexibility to build businesses over longer periods, provided they remain willing to reassess investments and adapt. They must determine who approves investments, how much authority professionals have, and how performance will be reviewed. Like traditional private equity, they need a clear basis for deciding when continued ownership serves their objectives and when capital should be redeployed.
To execute these goals, they also need to attract talent. With investments that may be held for many years, a family-backed platform needs ways to reward investment judgment and value creation without relying entirely on near-term exits. Professionals also need clarity about their authority, the way performance will be assessed, and the way family involvement affects investment decisions.
“A clear purpose alone is not enough to ensure that these investments succeed,” Liberti says. “Governance and accountability are the challenges that will determine how consequential this approach becomes for entrepreneurs and private-capital markets.”