Family Legacy Capital structures its investments, which are all in the United States, as loans to family businesses that have $25 million to $100 million in revenue. The investments range from $10 million to $50 million and will last three to five years, though the fund expects many of the families to pay back the money in half that time as their businesses improve.
The fund expects annual returns in the low double digits, which is far higher than the investors could get with regular debt investments. But the higher returns take into account the higher risk that comes with investing in struggling businesses. Still, since the investments are secured by assets of the businesses, the fund’s investors have recourse should families struggle to repay loans.
“The low risk is a critical component for the families that invest in these companies,” said Hendrik Jordaan, chairman and founder of Family Legacy Capital. “We’re bringing not only the capital but the family ethos.”
Mr. Jordaan also runs One Thousand & One Voices, a similar private equity fund that focuses on investments in Africa. Investors include the family of John Coors, a great-grandson of the founder of Coors Brewing.
Mr. Jordaan said bringing together families for a fund that was going to help other family businesses seemed like a natural response to the pandemic.
“Imagine if you have one of the world’s largest consumer manufacturing families in your investor base and you ask them, ‘What family-owned companies in your supply chain have you done business with for decades but they’re in trouble because of Covid?’” he said. “If you know your partners are a community of families and you place value on your legacy being preserved, you’re more likely to partner with a family. Our families want to know if their capital has made a difference.”
Mr. Widger said the Family Legacy Capital fund — which includes three other wealthy families, who asked not to be named — does research before making an investment. It asks questions about what the company is trying to create and how it is doing it. But the fund also wants to evaluate the family behind the business and understand what that family needs to keep its business operating successfully.
Culture is key, Mr. Widger said. “Families can get dysfunctional, but family businesses tend to have a really attractive culture,” he said. “It’s human nature to bring your children into your business. There’s something in the chemistry of working with family members. But you’ve still got to be able to have a good vision.”