The Family Office Talent Gap: Why Direct Investing Demands an Operator Partner

Family offices are moving into direct private market investing faster than at any point in the last decade. According to Citi Wealth’s 2025 Global Family Office Report, which surveyed 346 family offices across 45 countries with an average net worth of $2.1 billion, 70% of respondents were engaged in direct investments over the past twelve months, and 40% had increased or significantly increased their activity during that period.¹ A separate survey of over 75 global family offices by Bastiat Partners and Kharis Capital found that 50% plan to execute direct deals through independent sponsors within the next two years, more than double their planned allocation increases to any other asset class.² BNY Wealth’s 2025 Investment Insights report, drawing on 282 family office investment decision-makers, found that 64% expect to make six or more direct investments in the coming year alone.³

The direction is clear. The capability to execute is not.

For every family office successfully deploying capital into direct deals, there are several more stuck in what we call the “capability gap”: the distance between the desire to invest directly and the internal resources required to do it well. Understanding this gap, and the emerging models that close it, is critical for any family allocating to private markets in 2026.

The Appeal Is Real, and It Is Rational

The shift toward direct investing is not a fad. It is a structural response to legitimate frustrations with the traditional fund model.

Blind pool commitments require families to trust a fund manager’s judgment across a portfolio of unknown future deals. Fee structures in traditional PE (the standard 2-and-20 model) erode net returns, particularly in the lower middle market where deal sizes make management fees proportionally more expensive. Fund timelines rarely align with how families think about capital. A fund manager optimizing for a five-year exit may sell a business that a family would happily hold for fifteen.

BNY Wealth’s 2025 data bears this out: alignment of interests saw a 52% year-over-year increase as a priority for family offices evaluating investment partnerships.³ And more than half (52%) of family offices surveyed by Bastiat Partners and Kharis Capital said they prefer participating in deals through syndicates with pre-agreed terms over taking a lead role, reflecting a pragmatic desire for exposure without the full burden of deal execution.²

Direct investing addresses the core frustrations. Families evaluate each deal on its merits. They see the asset, understand the thesis, and choose to write the check (or not) with full transparency. Capital is deployed on the family’s timeline, not a fund’s deployment clock. This is why the trend is accelerating. It is also why so many families are discovering that the model is harder to execute than it appears.

The Capability Gap Is Wider Than Most Families Admit

Here is where the data gets uncomfortable.

According to a panel convened at the Family Wealth Report Summit in November 2025 (featuring professionals from Atlas Holdings, Potenza Capital, and IJP Family Partners), only half of family offices making direct private investments have private equity professionals on staff trained to structure and identify optimal opportunities. Just 20% take board seats as part of their investments, suggesting limited bandwidth for the governance and active ownership that direct investing demands.⁴

BNY Wealth’s research found that understaffing is the most significant bottleneck for direct investing programs. Among U.S. offices specifically, 44% cite understaffing as a key challenge, an 83% year-over-year increase.³ When asked to rank the top challenges of direct investing, family offices globally listed them in this order: “it is time-consuming,” “our office is understaffed,” “need to find the right operator/GP,” “lack of operating expertise,” and “direct investments are not scalable.”³

Read that list again. Three of the top five challenges are fundamentally about people and expertise, not capital, not deal flow, not market conditions.

This mismatch matters because direct investing in the lower middle market is not a passive activity. It is not like buying public equities where the market provides liquidity, price discovery, and professional management. When a family office commits capital to a $15 million EBITDA industrial services business, it has taken on a set of responsibilities that extend well beyond the wire transfer.

A Diagnostic: Is Your Office Ready for Direct Investing?

Before allocating to a single direct deal, a family office should honestly assess its internal capabilities. The following framework identifies the six functions required for effective direct investing and the minimum resources each demands.

1. Deal Sourcing and Screening. Can you generate proprietary deal flow in your target sectors, or are you dependent on inbound from intermediaries? Do you have the network depth to see opportunities before they reach a broad auction? Families that rely solely on inbound deal flow consistently overpay, because they are seeing the same opportunities as every other buyer.

2. Operational Due Diligence. Not financial diligence (most family offices can hire an accounting firm for a quality of earnings report), but operational diligence. Can someone on your team walk a shop floor and assess production efficiency? Can they pressure-test a management team’s claims about capacity, technology readiness, and customer concentration? Can they identify the difference between a business with a temporary revenue dip and one with a structural operating problem? This is the function where the capability gap is widest.

3. Deal Structuring and Negotiation. Do you have in-house expertise in lower middle market transaction structures, including earnouts, rollover equity, seller financing, and management incentive plans? These are not standard terms that a family office generalist can negotiate effectively.

4. Value Creation Planning. Before the deal closes, do you have a thesis for how the business will improve? Not a vague aspiration (“we’ll grow revenue”) but a specific, sequenced plan: which operational levers will be pulled in the first 100 days, which investments will be made in the first year, and what the business should look like at the end of the hold period?

5. Portfolio Governance. Can you provide active board-level oversight? Not just attending quarterly board meetings, but asking the right questions, holding management accountable to milestones, and intervening early when performance deviates from plan?

6. Exit Preparation and Execution. When the time comes, do you have the relationships and market knowledge to run an effective exit process, whether that means a sale to a strategic buyer, a recapitalization, or a secondary sale to another financial sponsor?

If a family office can answer “yes” with specificity to all six, it is ready for direct investing at scale. In our experience, fewer than one in five can. The remaining 80% need a partner who can fill the gaps, particularly in functions two, four, and five, which require deep operational expertise that cannot be outsourced to a diligence provider or a part-time operating advisor.

The independent sponsor model was built to solve this problem. An independent sponsor does not raise a blind pool fund. Instead, the sponsor identifies, diligences, and structures individual deals, then brings those opportunities to capital partners on a deal-by-deal basis. The capital partner evaluates each opportunity with full visibility and decides whether to invest.

The model has grown rapidly. According to H.I.G. Capital’s WhiteHorse lending group, there are now over 1,500 active independent sponsors in the U.S., nearly double the count of five years ago.⁵ Attendance at independent sponsor conferences has tripled during the same period. Axial’s 2025 Independent Sponsor Report found that family offices and high-net-worth individuals remain the dominant equity partners for independent sponsors, with usage at 85% and 81.3% respectively.⁶

This structure preserves everything families value about direct investing: transparency, deal-level discretion, and alignment. But it adds the layer that most families cannot build internally: a dedicated team whose entire focus is sourcing, winning, and operating businesses in specific sectors.

Not all independent sponsors fill the capability gap equally, however. And this is where the evaluation process must get rigorous.

The Operator Evaluation Framework: Five Questions That Separate Operators from Presenters

The independent sponsor market is broad. It includes former investment bankers sourcing deals from their networks, former operating executives who have transitioned into acquisition roles, and hybrid teams with both financial and operational DNA. As PitchBook data shows, deals valued at less than $25 million (the range where most independent sponsors operate) consistently represent only 2% to 3% of total PE deal volume, meaning competition is lower and operational skill matters more.⁷

For a family office evaluating sponsors, we recommend a structured assessment across five dimensions. Rate each on a 1-5 scale.

Dimension 1: Operational Biography

What has this sponsor actually done inside operating companies? Not what deals they have closed, but what they have built, fixed, or transformed. Ask them to walk you through three specific operational improvements in portfolio companies or prior advisory engagements. Listen for specificity. Vague answers like “we improved margins” are a red flag. Detailed answers like “we implemented a shared estimating platform across two regional operations that reduced bid turnaround from five days to one, which increased win rates by 14 points” are the signal.

Key questions: Have you personally led a SIOP implementation? A working capital optimization initiative? A sales organization redesign? A technology integration across multiple sites? If the answer is “our operating partners handle that,” dig deeper into who those partners are and how involved they actually get.

Dimension 2: Value Creation Methodology

Does the sponsor have a documented, repeatable approach to post-acquisition improvement? This is the difference between an investor who gets lucky once and one who can replicate results across a portfolio. Ask to see their 100-day plan template. Ask how they sequence operational initiatives. Ask what tools and frameworks they use for diagnosing improvement opportunities during diligence.

The best operator-investors will show you something specific: a structured approach to operational assessment, a defined process for prioritizing value creation levers, and a track record of applying it across multiple investments. If the sponsor cannot articulate a methodology, they do not have one.

Dimension 3: Sector Depth

A sponsor who claims expertise in “all industries” has expertise in none. The lower middle market rewards specialization. Ask: How many businesses in this specific sector have you operated in, advised, or acquired? Can you name the five largest platform acquirers in this space and explain their strategies? Do you have relationships with management teams and intermediaries in this sector that produce proprietary deal flow?

Sector depth creates compounding advantages. An operator who has improved working capital cycles across a dozen industrial businesses recognizes the levers in days, not weeks. One who has built a multi-site services platform knows which integration decisions to make in the first month and which to defer for six. This pattern recognition cannot be hired after the deal closes.

Dimension 4: Capital Partner Track Record

How many deals has this sponsor closed? With whom? Ask for references from prior capital partners, not just the ones the sponsor volunteers, but others you identify independently. What happened when a deal underperformed? Independent sponsors, unlike fund managers, do not have committed capital to provide follow-on equity when a portfolio company needs additional investment. Understanding how a sponsor has navigated adversity is as important as understanding how they have created value.

Dimension 5: Alignment Structure

How does the sponsor share in economics? What is their co-investment alongside your capital? What governance rights do you have? Can you hold the investment longer than the sponsor’s preferred timeline, or are you locked into a drag-along? The structure should reflect genuine partnership, not a fee arrangement dressed up as alignment.

What This Means for Capital Deployment in 2026

The macro environment is favorable. Global PE dry powder exceeds $1.2 trillion, with nearly a quarter of that capital held for over four years and facing increasing LP pressure to deploy.⁸ Interest rates have eased modestly, improving deal economics. Middle market deal volume is expected to rebound, with more than 80% of PE and corporate dealmakers expecting greater deal volume over the next 12 months, according to Deloitte’s 2026 M&A Trends Survey.⁹

At the same time, the operating environment is more complex than it was three or four years ago. The Supreme Court’s February 20, 2026 ruling striking down IEEPA tariffs has introduced a new phase of trade policy uncertainty, with replacement tariffs already in effect under Section 122 and additional Section 301 investigations underway.¹⁰ Labor constraints persist across industrial and services sectors. Input costs remain elevated. This is not a market that rewards passive capital. It rewards engaged, operationally capable ownership.

The emerging consensus among sophisticated family offices reflects this reality. It is neither pure direct investing nor pure fund allocation, but a blended approach: selective fund commitments with co-investment rights, paired with direct deal partnerships alongside independent sponsors who bring genuine operational capability.⁴ The key word in that sentence is “operational.” The independent sponsor market, like any market, has a distribution of quality. Sponsors who can walk a shop floor and identify a value creation opportunity from lived experience represent one end. Sponsors who are essentially unfunded deal brokers with a pitch deck represent the other.

The families that recognize this distinction, and allocate accordingly, will generate meaningfully better outcomes than those who treat the independent sponsor category as undifferentiated.

Start the Conversation

At Amalgam Capital, we built our firm around a simple conviction: the best outcomes in the lower middle market come from operators who acquire, not financiers who advise. Our team has led SIOP implementations, redesigned shop floors, rebuilt sales organizations, and optimized working capital at mid-market companies before we ever wrote our first check as investors. That operating DNA is embedded in how we source deals, conduct diligence, and create value after close.

If you are a family office or HNW investor evaluating direct investment partnerships, we would welcome the opportunity to share how we approach the operator-investor model and what we are seeing in our target sectors. We are happy to walk through our value creation methodology, our sector thesis, and our track record with the same specificity we expect from any partner we would back.

Reach out to us at contact@amalgamcapital.com or visit amalgamcapital.com to learn more.

Sources

Citi Wealth, 2025 Global Family Office Report, September 2025. Survey of 346 family offices across 45 countries, average net worth $2.1 billion. ↩
Bastiat Partners and Kharis Capital, Family Offices and the Future of Private Markets, 2024. Survey of over 75 global family offices. ↩ ↩²
BNY Wealth, 2025 Investment Insights for Single Family Offices, 2025. Survey of 282 family office investment decision-makers, most with $500M to $5B in AUM. ↩ ↩² ↩³ ↩⁴
Family Wealth Report Summit, “Going Direct: The Evolution of Family Office Private Market Investing,” November 17, 2025. Panel featuring Claire Champy (Atlas Holdings), Brian Sun (Potenza Capital), Ira J. Perlmuter (IJP Family Partners), and Pete Bennitt. ↩ ↩²
H.I.G. Capital / WhiteHorse Capital, “A Lender’s Lens on the Independent Sponsor Market,” July 2025. ↩
Axial, 2025 Independent Sponsor Report, October 2025. Based on responses from 83 active sponsors plus M&A advisor and family office feedback. ↩
PitchBook, Q3 2025 US PE Breakdown, October 2025. Referenced in TIFF, “10 Observations After a Decade in the Independent Sponsor Market,” December 2025. ↩
Walden M&A, “2026 M&A Outlook for the Lower Middle Market,” December 2025; Windsor Drake, “M&A Market Outlook,” August 2025. ↩
Deloitte, 2026 M&A Trends Survey, 2026. Survey of 1,500 dealmakers. ↩
U.S. Supreme Court, Learning Resources, Inc. v. Trump, 607 U.S. ___ (2026), decided February 20, 2026. ↩