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CRE Insights Blog

Should Direct Investments Be Diversified

Family Office expert, Richard C. Wilson, speaks about risk management with direct investments Hello, this is Richard Wilson at the Family Office Club coming to you from Vegas. Today, I want to talk about the idea of risk management with direct investments. Every investor has to approach risk based on their unique risk profile and what their goals are. The most interesting is that when you highly diversify with direct investments, you’re probably increasing the risk. You’re going to be less likely to catch things in due diligence. You’re not going to know what the true valuation is. You’re not going to have as many synergies with other assets in your portfolio. You’re not going to see the deals first or the best deals first very often because there’s no way to be known as the big mover or the titan of one area that someone should be thinking of top of mind and first in mind in a direct investment niche. If you’re investing all over the place in 13 different industries, there’s no way for you to be the best known in 13 different industries for your Family Office when it comes to sourcing direct investment deal flow. I just stepped off stage and a multi-billion dollar Dubai Family Office was speaking with me on a panel and he said that they own almost every building on one street in downtown London. And if you think about that, it might seem like, “Whoa, what a concentration. There’s so much risk,” but if they have those assets in place, who do you think is going to get to see the deals first in that local area? And they’ll know if they’re overpaying or not because of their knowledge of the space. There’re synergies and managing assets that are nearby and by having specific knowledge that’s going to help you get in and out of something and structure it properly, that’s appropriate for an industry and uses the tax write-offs and code that’s relevant for a specific industry. He has many advantages that you wouldn’t get if you were highly diversified. For all these reasons, I think that traditional diversification makes little sense for many families when it comes to direct investments. When investing as a Family Office you can never make a blanket recommendation for investments because it’s dangerous. Investors need different things, but I think there should be more discussion in the Family Office space about the benefits of concentrating a portfolio versus diversifying it when it does come to direct investing into operating businesses or real estate assets. Hope you found this video helpful. This is Richard Wilson from the Family Office Club and familyoffices.com.

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Richard Wilson