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Family Offices, Direct Investing and the Benefits of Data Tagging

As family offices increasingly turn to direct investing, the ability to anticipate and react to change is what will protect and enrich them.

Family offices are steering their ultra-high-net-worth clients away from traditional investing due to market upheavals. In a survey by Dentons, 63% of respondents noted they now use direct investing, seeking the rewards of opportunities that are proving to show much more promise with far less risk.

Yet, directly funding a business is difficult, especially when it comes to critical tasks like finding the right investment, wrangling terms and coming up with exit strategy. This makes some family offices wary, fearing they might be overwhelmed, lose control and fail to carry out necessary due diligence. As a result, they miss out on vehicles that are safer and can deliver tremendous payoffs, including when a company they’ve invested in goes public and returns a jackpot. 

While understandable, their reluctance is unfortunate and unnecessary. There are platforms to ease the management of complex asset portfolios, supported by modules that allow tracking and the customization of data to predict and follow every single private investment. 

Making Tracks

In traditional investing, portfolio managers and support staff conduct due diligence—and information is then used to decide where funds are placed. Family offices do this internally and there is a daunting list of financial metrics to be tracked in order to understand if a company is a sound investing opportunity. The problem is, legacy technology is limited and relies on tools that are more general in nature as opposed to being ones designed for family offices.

The most glaring shortfall in this regard is custom data tagging, vital for efficiently generating the right information and effective reporting. Remember, you need to thoroughly grasp a company’s EBITDA (earnings before interest, taxes, depreciation and amortization), arguably the best indication of its financial position and potential for making money. Then there’s size, market capitalization, industry performance, even geography: a natural or weather-related disaster can have a major impact. Simply put, it’s a far more involved process than just evaluating the performance of a fund manager and a portfolio.

A system that can track both existing portfolio investments and prospects is what’s needed for analysis. This information can then be used to help family offices adapt investment strategy for better use of capital and greater returns. The feature also enables testing against a true baseline and the vetting of approaches prior to any resources, and mistakes, being committed. And such capabilities are greatly enhanced with data tagging.       

When Time Is Money

Some new modules for direct investment tracking allow custom data tagging, an approach furthered by the addition of values. In this way, a family office can tag an investment, clearly view its holdings, then plug in values that’ll highlight possible vulnerabilities in areas from investment type to geography to the company itself and more.

If you used geography as a tag with the value being North Carolina, you could track and get details on influences that could impact the sales of a prospect in a region. Whereas company values change regularly, EBIDTA could be an additional tag. Some platforms can track performance over time, follow trends, identify what could be controversial investments, all while enabling family offices to act fast and seize emerging opportunities.

Further, tags can point out dangerous exposure. As a result, you can know where you stand and take action if a regional institution you’ve invested in collapses, like Silicon Valley Bank. A family office relying on slower manual processes, however, may run out of time for taking mitigating measures. Additionally, newer technology can paint a picture of a target’s likely profitability over time. And a family office with such capabilities can avoid investing in a business likely to face troubles in the days ahead.  

Warren Buffet indicated that Berkshire Hathaway was aware of a problem at Silicon Valley Bank, which kept him from investing in the institution. And it was likely their more modern systems that sounded the alarm, preventing the organization from suffering loss and embarrassment.

Adapting to Change

Tags can be an extremely valuable tool in post investment activities as well. Reporting can be enhanced with tags to provide new reporting and additional groupings, adding greater detail and accessibility. And while a tag won’t stop the impact on investments already made, it will help you handle the repercussions that follow something like a collapse by providing tools for predicting market turmoil.

For instance, in states like Oklahoma, Kansas and Missouri, the spring can bring tornados with an ability to decimate business assets and entire industries like agriculture. So, a family office directly investing in this market could use data tagging to pinpoint and closely monitor those at heightened risk during tornado season. And a portfolio management system with this level of tagging can mitigate a slew of disasters—natural and manmade due to insufficient legacy technology—in varied locations and industries, perhaps nullifying their impact entirely.

This is just one example of how family offices lacking a thorough understanding of their investment’s position will remain with a rapidly tanking investment and end up paying a severe price. The ability to quickly gain a healthy, approximate picture can make all the difference. While exact details may be preferred, the long wait for these to be produced could ruin an otherwise painstakingly managed portfolio. As family offices increasingly turn to direct investing, the ability to anticipate and react to change is what will protect and enrich them.


Nicole Eberhardt is CEO of Ledgex, creators of a platform built to solve multi-asset data quality and usability challenges. For more information, visit

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