Institutional investors and family offices manage large pools of capital with specific obligations and time horizons, which determine what they buy, how long they hold and how they behave in a crisis.
10 min read
I find it more useful to ask what an investor's money is for than what kind of investor they call themselves. Obligations are what show up in a crisis, and most surprises about institutional behaviour come from ignoring them in calmer times.
Institutional investors manage money on behalf of others or for a long-lived purpose:
Type Money is for Typical horizon Key constraint Pension fund future retirement payments decades must meet obligations to members Endowment supporting a university or charity perpetual annual spending needs Insurance company paying future claims varies regulation and matching liabilities Sovereign wealth fund a nation's long-term reserves very long political and policy goals
A family office manages the wealth of one family or a small group of families. Some behave like institutions with professional teams; others are informal and act more like large angels. Many invest directly in companies as well as through funds.
These investors are major LPs in private funds and increasingly invest directly or co-invest alongside funds.
Because an investor's obligations shape its behaviour. A pension fund with predictable long-term payments can hold illiquid assets for decades; an insurer with uncertain near-term claims needs more liquidity.
For founders and co-investors, family offices can be flexible, long-term partners - or inconsistent ones, depending on their structure and decision-making.
Educational, not personalised financial advice. Nothing in the Investor Academy is a recommendation to buy, sell or hold anything — what is right for you depends on your own circumstances and the rules where you live.
A market downturn affects two long-term investors differently.
An endowment spending about 5% of its value a year keeps committing to private funds on schedule, because its horizon is perpetual and it planned for illiquidity. A single-family office whose principal becomes anxious about public market losses pauses all new private commitments and asks existing managers about secondary sales.
Both were long-term investors on paper. Their behaviour in stress depended on governance and obligations, not just their stated horizon.
Assuming that a long stated investment horizon guarantees patient behaviour. Governance, liquidity needs and decision-makers determine what actually happens when markets fall.
Understand the investor's obligations and spending needs.
Find whether there is a professional team, an investment committee or a single decision-maker.
History shows how durable a commitment is likely to be.
When raising from, co-investing with, or evaluating the reliability of an institutional investor or family office.
Do not generalise from one family office to all. Their structures and behaviour vary enormously.
Many university endowments publicly disclose spending policies, often targeting annual distributions around 4% to 5% of a multi-year average of endowment value, which allows them to take long-term, less liquid positions.
A known, stable spending rate is what makes long-term illiquid investing sustainable for an institution.
Create a free account to read the rest and apply it to your own investing.