Library guide · Capital Allocation
Direct Investing vs Fund Investing: How Should a Family Office Invest?
Buying stakes in companies yourself, or committing capital to a manager's fund. How the two compare on cost, control, diversification and the team they require.
Direct investing means a family office buys stakes in private companies itself; fund investing means it commits capital to a private equity or venture fund whose manager picks the companies. Direct deals avoid fund fees and give control, but need an internal team and concentrate risk; funds give diversification and access to specialist managers, at the cost of fees and control. In UBS surveys, family offices shifted from 13 percent direct and 8 percent in funds in 2021 to an even 11 percent each in 2023.
Key takeaways
- Direct: no management fee or carried interest to a manager, full control and a say in the company, but concentrated risk and a real team needed.
- Funds: diversification across many companies and access to specialist managers, at the cost of fees, lock ups and no control.
- Co-investment sits between the two: investing directly alongside a fund, often at reduced or no fees.
- UBS surveys show a shift back toward funds: 13 percent direct versus 8 percent in funds in 2021, then 11 percent each in 2023.
Once a family office decides to invest in private companies, it faces a second choice: do it itself, or pay a specialist manager to do it through a fund. The two routes lead to very different organisations, cost structures and risks.
| Question | Direct investing | Fund investing |
|---|---|---|
| Who picks the companies | The family office | The fund manager |
| Fees | No management fee or carried interest to a manager | Management fee and carried interest, often around 2 percent and 20 percent |
| Control | Board seats, negotiated rights, a say in the company | None over individual companies |
| Diversification | Low: a few large positions | High: many companies per fund |
| Team required | Internal investment, legal and monitoring capacity | Manager selection and oversight |
| Access | Depends on the family's own network and reputation | Access to specialist managers and their deal flow |
| Liquidity and timing | Set by the family, exit by negotiation | Locked for the fund's life, often around ten years |
Direct investing
A family office that invests directly chooses, negotiates and holds stakes in private companies itself. It avoids the manager's management fee and carried interest, can take board seats, can hold a good company for as long as it wants, and often brings experience from the family's own business. The costs are real: it needs an internal team able to source, assess, negotiate and monitor deals, and a few large positions mean concentrated risk. One bad investment can hurt far more than in a diversified fund.
Fund investing
A family office that invests through funds commits capital as a limited partner and lets the manager pick the companies. It gains diversification across many businesses, access to specialist managers in sectors and regions it does not know, and a team that does the work. It pays for this with fees, a long lock up and no control over individual companies. See What Is an LP and a GP?
Co-investment, the middle route
Many families combine the two through co-investment: taking a direct stake in a specific company alongside a fund they already invest in, often at reduced or no fees, while relying on the manager's sourcing and due diligence. It adds control and fee savings without building a full deal team. See What Is Co-Investment?
What the data shows
In the UBS Global Family Office Report surveys, the average office held 13 percent in direct private equity and 8 percent in funds in 2021, at the peak of the direct investing trend. By 2022 the split was 9 percent direct and 10 percent in funds, and in 2023 it was even at 11 percent each (UBS). Since then, according to UBS data reported in 2026, allocations to funds have matched or exceeded direct holdings, while the total private equity allocation fell from 22 percent in 2023 to 17 percent in 2025 as distributions slowed.
How to choose
Direct investing makes sense for families with sector expertise, a real internal team and enough capital to absorb concentrated positions. Fund investing suits families that want diversified private market exposure without building a deal team. Most sizeable family offices end up with a mix: funds for breadth, direct and co-investments where they have an edge. See How Do Family Offices Invest?
Frequently asked questions
- What is the difference between direct investing and fund investing?
- In direct investing, the family office chooses, negotiates and holds stakes in private companies itself. In fund investing, it commits money to a fund, and the fund manager chooses the companies. Direct investing gives control and avoids fund fees; fund investing gives diversification and specialist selection.
- Do family offices invest directly or through funds?
- Both. In the UBS Global Family Office Report surveys, the average office held 13 percent in direct private equity and 8 percent in funds in 2021, then 9 percent and 10 percent in 2022, and 11 percent each in 2023. Since then, allocations to funds have matched or exceeded direct holdings, according to UBS data reported in 2026.
- Is direct investing cheaper than investing in funds?
- It avoids the fund manager's management fee and carried interest, which are often around 2 percent a year and 20 percent of profits. But it is not free: the family office pays for its own investment team, due diligence, legal work and monitoring, which only makes sense at sufficient scale.
- What is a co-investment?
- A co-investment is a direct stake in a company taken alongside a private equity fund, usually offered to the fund's investors. It gives exposure to a specific deal, often at reduced or no fees, while relying on the fund manager's sourcing and due diligence.
This guide is educational and general in nature. It does not constitute investment, legal, tax or financial advice.
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