Ron Geffner, an authority in the security industries, holds a prominent role as a founding member of the executive committee at Sadis & Goldberg LLP. He assumes oversight responsibilities for the financial services group, providing legal services to hundreds of hedge funds, private equity funds and venture capital funds. Geffner’s expertise extends to both domestic and international entities.
Why do families have so much cash on the side?
During the bull market, when volatility started kicking in, families were holding on to cash, either based on cash flow experiences or the sale of or harvesting of their investments. The valuation deals increased, thereby causing some family offices to pull back. And as interest rates have climbed and deal flow has slowed down — along with the market turmoil and the war in Ukraine and inflation — all of those variables have caused people to sort of hesitate and to look at investment opportunities with greater scrutiny.
Where are they putting their money?
According to a recent FINRX study and based also on our conversations with our clients on the family office side, about 90% of family offices expect to increase their investments in illiquid assets in the next two years. That’s a really high number. It’s hard to generalize because allocations from family offices run the spectrum from some with a high concentration in real estate investments to others who have had a liquidity event and are now seeking to diversify their wealth. But overall, there’s definitely a strong interest in real estate.
We just got hired to launch a product that’s investing in public REITs, we’re getting calls for hard money lending funds and for hardcore dirt [undeveloped land]. And those calls are coming from both investors inside and outside the U.S. for investment in the American real estate market. All kinds of different ways of investing in real estate, though I haven’t heard that much recently about qualified opportunity zones.
Why is real estate so hot?
Given where we are in history — we’re in an inflationary period, there’s market volatility and the tax advantages in connection with investment in real estate, while producing current cash flow — it makes sense.
Some of our family office clients are also making investments in various technology-related businesses or other startups, where the pendulum is swinging back to normal when it comes to valuations and salaries. It still seems pretty consistent, the deal flow that they were doing in tech.
And debt — I just got a call 48 hours ago from a group that has family offices in the U.S. about investing in distressed debt in Europe.
This is a busy time because when money gets tighter, people look at how they’re spending it.
Are there standard practices for compensation, or does it vary from office to office?
Like everything else, if you’ve seen one family office, you’ve seen one family office. It varies across the board. And they get competitive. Obviously, to hire the best people, you have to be more generous.
We’ve been dealing with issues with certain families as they make investments, about how to compensate their teams — especially the team that’s not part of the family but is employed by the family.
How do you see investment activity changing in the next few months?
We’re having a reality check right now. And who’s to say where the bottom is? And when the bottom hits, there will be more attractive investment opportunities. That investment isn’t just about writing a check to a portfolio company, but it’s also into human talent.