UAE family offices are bypassing private equity funds - direct deals rose sharply in 2025. The opportunity is real, but so is the capability gap.
- Seven in ten family offices globally now engage in direct investment, with direct allocations exceeding 40% of the typical private equity sleeve, according to Citi and UBS data.
- Direct investment in private companies rose sharply during 2025, with technology, industrial materials, and energy transition among the leading sectors for deal flow.
- The shift is driven by fee savings on the traditional "2-and-20" model, greater control over capital, and tighter alignment of interests with management teams.
- The average direct investment at active family offices stands at $19 million, with 64% of offices expecting to complete six or more direct deals in the coming year.
- UAE family offices are mirroring global peers, using DIFC and ADGM special purpose vehicles to hold direct stakes - supported by the UAE's 2025 Family Foundation tax clarification.
- Offices moving into direct investing must build institutional-grade due diligence, formal investment committees, and active portfolio monitoring - capabilities that typically require dedicated professional hires.
A Structural Shift in How Family Offices Deploy Private Market Capital
Family offices around the world are restructuring their private market exposure - pulling capital from traditional private equity (PE) funds and deploying it directly into companies themselves. According to Citi's 2025 Global Family Office Report, approximately 70% of family offices are now engaged in direct investing, a proportion that has risen steadily over the past decade.
In the UAE and wider GCC region, the trend is equally visible. Family offices structured through DIFC and ADGM are increasingly using special purpose vehicles (SPVs) to hold direct stakes in private companies, often alongside co-investors and independent sponsors. The appeal is straightforward: more control, fewer fees, and greater transparency into portfolio company operations.
The Sharp Rise in Direct Dealmaking
The pace of the shift accelerated meaningfully during 2025. A report by BNY found that 64% of family offices expect to complete six or more direct investments in the coming year - a 10 percentage point increase on the prior period. Research from Bastiat Partners and Kharis Capital separately indicates that 50% of family offices plan to execute direct deals through independent sponsors over the next two years.
Direct allocations now account for over 40% of the typical family office private equity sleeve, according to UBS data - a sharp increase from a decade ago. At offices that have built active direct investment programmes, the average allocation to direct deals is 37% of private equity assets under management, with an average single investment of $19 million.
Behind much of this activity lies a clear desire to reduce fees. Traditional PE fund structures carry a "2-and-20" model - a 2% annual management fee and 20% performance carry on gains above a defined hurdle. For families deploying tens of millions, even modest fee savings compound significantly over a ten-year hold period. A 52% year-on-year increase in family offices citing alignment of interests as a key consideration points to a broader strategic shift, not merely cost optimisation.
Which Sectors Are Attracting Capital - and How Deals Are Structured
Technology has emerged as the dominant sector for direct deal flow, followed by industrial materials and other strategic areas including energy transition and healthcare. This preference partly reflects the types of founder-led businesses in which family capital holds a natural competitive advantage - situations where patient capital and operational flexibility matter more than the institutional governance of a large PE fund.
Co-investing has become the default entry point for many offices building direct programmes. By partnering with an independent sponsor who leads the deal, families gain structured access without requiring a full in-house deal team from day one. Co-investment also reduces fee drag compared with full fund participation, while retaining the option to develop proprietary deal-sourcing capability over time.
In the UAE, family offices have benefited from a supportive structural environment at both major financial centres. The DIFC's 2024 Family Arrangements Regulations reduced administrative burden and enhanced privacy, while the UAE's 2025 tax clarification enabled fiscal transparency for Family Foundations. DIFC's Dh100 billion Zabeel District expansion, targeting 42,000 registered firms by 2040, reflects the scale of institutional ambition behind the emirate's family office infrastructure.
The Governance and Due Diligence Gap
However, the risks of direct investment are material. Unlike a fund structure - where the PE manager assumes responsibility for deal sourcing, due diligence, board representation, and portfolio management - a direct investor must internalise all of these functions. For families without established investment teams, this represents a significant capability requirement.
Institutional-grade due diligence for direct deals involves detailed financial modelling, market positioning assessments, management team evaluation, and downside scenario analysis. It is time-intensive and specialist. Family offices that have scaled direct programmes successfully have typically hired former PE professionals in-house, established formal investment committees, and implemented structured portfolio-monitoring processes.
Concentrated exposure is another risk that distinguishes direct deals from fund investments. A single company represents a binary outcome - the return depends entirely on that specific management team, sector dynamics, and exit timing. Robust risk management frameworks, including scenario planning and active board engagement, are increasingly a baseline requirement for offices running meaningful direct portfolios.
What This Means for UAE Family Office Advisors
Advisors working with UAE-based family offices are confronting two parallel demands. Clients with established direct investment capabilities want advisory support that mirrors private-market practice: deal structuring through SPVs, co-investor introductions, tax structuring via DIFC or ADGM foundations, and portfolio governance design. This is a different brief from traditional wealth management mandates and requires specialist knowledge that many advisory practices are actively building.
For families considering direct investing for the first time, advisors need to set clear expectations about the capability requirements involved. The UBS Global Family Office Report 2026 found that 82% of Middle East family offices are planning strategic portfolio reallocation - reflecting a broader rethinking of how private market exposure is structured. Direct investing demands governance infrastructure that not all families currently have, and a co-investment approach through an established independent sponsor may be the most practical first step for offices without dedicated investment professionals.
What Clients are Asking their Advisors
What is family office direct investment?
Direct investment means a family office takes an ownership stake in a private company itself, rather than committing capital to a pooled private equity fund. The family holds the asset on its own balance sheet or through a dedicated special purpose vehicle (SPV), bypassing the fund manager and the associated fees.
How do UAE family offices typically structure direct deals?
Many UAE-based family offices use SPVs registered in DIFC or ADGM to hold direct stakes in private companies. These structures benefit from common-law legal frameworks, tax efficiency, and regulatory clarity - including the UAE's 2025 Family Foundation tax clarification, which enables fiscal transparency for family-owned investment vehicles.
What are the main risks of family office direct investing?
The primary risks are concentrated exposure to a single company and the need to internalise all due diligence, governance, and portfolio monitoring that a PE fund manager would otherwise handle. Without dedicated investment professionals and formal processes, outcomes can be highly variable compared with a diversified fund allocation.
How much does direct investing save on fees compared to private equity funds?
Traditional PE funds typically charge a "2-and-20" model - a 2% annual management fee and 20% carried interest on profits. By investing directly, family offices eliminate these charges and retain a larger share of returns. Co-investing alongside an independent deal sponsor can reduce fees further, though some carry arrangement with the lead partner usually remains.
Further Reading
Family Offices Bypass Private-Equity Funds to Go Direct (Barron's)Family Offices Bypass Private Equity Funds to Make Bets Directly (Wealth Management)
The New Family Office Playbook: Financing Direct Investments (Bloomberg Live)
UAE Wealth Managers Urged to "Raise the Bar" for Global Citizen Clients