Family offices seek the next PE superstars in new firms

  • Why this is important: Family offices prefer lower-middle-market focused emerging managers

Family offices invest in emerging managers because they see greater opportunity to build meaningful relationships.

“Ours is not the family office to come to if you are KKR or TPG,” said Forrest Tempel, partner at Reynolds Capital Partners, who spoke on a family office panel at Buyouts Insider’s PartnerConnect Texas conference Dec. 12.

Reynolds Capital invests $1 million to $20 million and could be the most important investor for an emerging manager, Tempel, said.

“If they become Richard Rainwater, I am in them from Day 1 and the relationship matters,” Tempel said.

Reynolds Capital looks for funds raised by mid-level executives leaving larger funds, who worked hard every day rather than jetting off on fabulous vacations, Tempel said.

The FO also likes emerging managers where the senior people had retired and then come back to get the band together, he said.

Alignment of interest was extremely important for panelist David Mumert, investment director at Mount Vernon Investments.

The amount the GP commits to his own fund is vital, he said. Mount Vernon also likes to know the other investors in the fund and their expectations, Mumert said.

The family office also likes slow and steady growth of AUM. “Growth can be hard for firms and creates challenges,” Mumert said.

On the other hand, Cockrell Interests partners with emerging managers with operating experience, who have built teams and hired and fired people, said Guido Caranti, managing director, who also spoke on the panel.

“We invest with managers who know the industry players and have industrial knowledge,” he said.

Reynolds Capital is part of Fort Worth Allocators Group, made up of about 20 family offices that write equity checks of $1 million to $50 million.

“My job is to kill [deals] as fast as I can,” Tempel said. “And if they can make it through us killing them, they can go live.”

Mount Vernon shares information on managers with other family offices and endowments, Mumert said. He prefers managers focused on specific areas and opportunities.

Mount Vernon also invested with several independent sponsors, Mumert said. That strategy, however, was not popular with every panelist.

Tempel said reviewing independent sponsors was not a good use of his time. The firm cannot get comfortable backing a team that it has not previously underwritten, Tempel said.

It’s pretty rare for their family office to do a one-off investment in independent sponsors, he said. “We may do two in a hundred,” Tempel said.

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Correction: A previous version of this report misspelled Forrest Tempel’s name. The report has been updated.