Ultra-high-net-worth families are increasingly building their own real estate investment capabilities and establishing direct deal pipelines as they seek to reduce their dependence on traditional private equity real estate funds, according to wealth managers interviewed by Reuters. The move reflects growing dissatisfaction with fee structures and a desire for greater transparency and control over investment decisions. Families are deploying capital through co-investments, separate accounts, and wholly owned special purpose vehicles that provide enhanced governance and more favourable economics than commingled fund structures.
The trend is particularly pronounced among European and Middle Eastern family offices, which are actively rotating capital out of legacy core office and retail mandates. These families are redirecting investment flows toward build-to-rent residential developments, last-mile logistics facilities, and specialised sectors including data centres and life-science laboratories. The reallocation represents a fundamental shift in how ultra-wealthy investors approach real estate exposure, moving away from broad-based fund commitments toward more targeted, direct ownership strategies.
Wealth managers describe the shift as part of broader strategic asset allocation reviews being conducted by family offices worldwide. Several families are simultaneously cutting back on underperforming hedge fund allocations to free up capital for real assets. The appeal of real estate in this context extends beyond fee reduction to include inflation linkage and potential tax advantages that have become increasingly attractive in the current macroeconomic environment.
The move toward internalisation comes with significant operational requirements that family offices must address. Advisors caution that more direct ownership necessitates expanded in-house teams capable of sourcing, underwriting, and managing complex real estate transactions. Families pursuing this strategy are investing heavily in talent acquisition and technology infrastructure to support their growing direct investment activities.
Robust risk management frameworks have emerged as a critical component of successful internalisation efforts. Family offices are implementing institutional-quality due diligence processes and portfolio monitoring systems to match the standards previously provided by external managers. The transition requires substantial upfront investment in systems and personnel before the fee savings and control benefits can be fully realised.
Enhanced reporting capabilities represent another essential element of the direct investment model. Families are developing sophisticated performance measurement and attribution systems to ensure transparency and accountability across their real estate portfolios. These reporting standards must satisfy not only family principals but also external advisors, auditors, and in some cases regulatory authorities depending on the jurisdiction and structure employed.
The shift toward direct real estate investment reflects a broader maturation of family office operations over the past decade. As these organisations have grown in scale and sophistication, many have reached the threshold where building internal capabilities becomes economically viable compared to paying external management fees. The trend appears likely to accelerate as younger generation family members with professional investment backgrounds assume greater decision-making authority.
Despite the clear momentum toward internalisation, wealth managers note that the strategy is not suitable for all families. The economics of building in-house teams only make sense above certain asset thresholds, and not every family possesses the governance structures or risk appetite required for direct deal execution. The divide between families capable of internalising investment functions and those better served by external managers is expected to widen in coming years as the real estate investment landscape continues to evolve.