Family offices investing in private debt face several challenges, including:
- Lack of transparency: Private debt investments are often opaque, and family offices may not have access to the same level of information as they would with public investments 1 .
- Difficulty in sourcing deals: Family offices may struggle to find attractive private debt deals, as the market is highly competitive and many deals are done off-market 2 .
- Risk management: Private debt investments carry risks, including credit risk, liquidity risk, and interest rate risk. Family offices need to have a robust risk management framework in place to manage these risks 1 .
- Limited liquidity: Private debt investments are illiquid, and family offices may have to hold their investments for several years before they can exit 1. Lack of diversification: Family offices may have a limited pool of private debt investments to choose from, which can lead to a lack of diversification in their portfolio 3 .
Despite these challenges, family offices are increasingly attracted to private debt due to the double-digit returns and strong cash flow that it offers 4 5 . Family offices may also have an advantage over other types of lenders due to their agility and quickness with loans, as they typically have little debt and a lot of cash on hand 4 .