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Five Factors Complicating Direct Deals Right Now For Family Offices



Family offices are continually evolving. As they grow in number and assets, direct investment models are emerging, and conventional portfolio architecture is being revisited with vigour in the post-COVID environment.

The recent Dentons Family Office Direct Investing Survey reveals various reasons why more family offices focus on direct investments. These include enhanced returns through circumventing management fees and the carried interest of fund investments, alignment with the family’s interests to exert more influence and enjoying greater control and transparency within specific industries and company types.

Despite these benefits, direct investments are not without challenges. These types of investments are often complex, illiquid and risky, and there is also no guarantee that they will outperform funds and publics. What’s more, they require skilled investment management resources to ensure success.

Below are the top factors complicating direct deals as listed by the survey’s respondents. These factors, along with trust and confidence, an often lesser considered factor, warrant careful consideration when formulating direct investment strategies in 2023 and beyond.

Operational risk

According to Denton’s data, 45% of family offices worry about taking on too much operational risk when investing directly. This is a legitimate concern given the nature of operational risk and the fact that even a slight oversight can have significant repercussions. There are, however, ways to maximize operational security and reduce this risk.


Many elements factor into operational risk, which requires careful consideration when assessing direct investments and ongoing monitoring and assessment throughout the investment process. Therefore, it is vital that each potential risk element, no matter how nuanced, is considered and assessed rather than focusing solely on a few significant risks from the operational category.

It is also advised that family offices involved in direct investing formulate a documented operational due diligence process and that minimum consistent level standards are set for review on an ongoing basis. The initial formulation of such procedures may take time and pose additional challenges at first. However, when identifying objective minimum standards across different opportunities, having a structured, well-defined process in place offers a solid foundation for assessment that can be tailored to best practice over time.

Family offices not equipped to carry out operational risk assessments and management strategies in their entirety may consider investing in developing this expertise in-house or securing outside council can save considerable sums long-term.

Access to high-quality deal flow

Forty-three percent of Denton’s survey respondents cited access to high-quality deal flow as a challenge in direct investments. This is particularly relevant in an increasingly competitive environment where family offices are conducting higher value and volumes of deals than ever before, as evidenced by the findings of the recent PWC Family Office Deals Study.

To secure deals, single family offices are reportedly partnering with other family offices and groups on deals. Expanding these partnerships will become crucial, and families must look beyond their immediate networks and build relationships beyond them.

Still, building new deal pipelines is often tricky. While family offices are increasingly looking for new opportunities because they are private by design, it can be challenging for outside parties to discern which families are actively seeking investment opportunities. This causes a disconnect in the deal flow pipeline. It is, therefore, critical for family offices to build a presence within industries of interest. This can be achieved by joining relevant industry bodies and associations, attending conferences, networking events and educationals to build relationships and expand the family office’s footprint.

Control over exit options

While family offices are known to be flexible and offer patient capital, exit options are still considered for direct investments. In fact, forty-two percent of Denton’s survey respondents listed exit strategies as a challenge.

To minimize complications, family offices making direct investments need to understand their total wealth, liquidity and strategic goals across their entire portfolio. These factors, along with the investment timeline, must be clearly defined for the family, the portfolio company and the stakeholders to ensure alignment of all parties.

Due diligence

FINTRX data shows that most family office investments occur throughout early-round funding, with 29.5% of these being made in the earlier seed-stage and venture rounds.

Due diligence is undeniably a necessary step in the investment process, yet, forty-one percent of Denton’s survey respondents list it as one of the top challenges they face when it comes to direct investing, particularly from a legal perspective. When it comes to startups, conducting due diligence in the same way that a family office would on a larger company can cause significant delays and potential missed opportunities.

New ventures are notoriously difficult to value, and much like family offices, each is different. According to Seraf, comprehensive due diligence efforts on startups that require endless hours of investigation into every aspect of the company and drag on for months may do little to de-risk the deals.

Similarly, family offices involved in any direct investment need to consider re-evaluating how due diligence on startups is performed and not subject them to the same approaches employed when evaluating more mature companies. Creating new processes that revolve around identifying risks, obtaining sufficient information to develop an investment thesis, and knowing what needs to be believed for investments to be viable can help execute due diligence in a comprehensive yet more rapid manner.

Trust & confidence

Foreign direct investment is critical to global economic development. Marked declines have been noted as tax reforms, anti-globalist policies and, most recently, the COVID-19 pandemic have taken their toll on countries worldwide.

Investor confidence has plummeted for developed, emerging and frontier countries, with the latter two being hardest hit. However, a return to fundamentals is noted, with investors favoring larger, more stable markets with more predictable political and regulatory structures.

Now more than ever, it is critical for family offices to utilize strategic foresight tools to improve planning strategies and predict potential future exogenous shocks. As a result, contingency and scenario planning, simulations and “war-game” exercise are becoming an essential part of direct investment protocols.

The challenges associated with direct investments are undeniable. Yet, with values alignment, proactive strategy and process formulation, investing the required resources in developing expertise in this area and a little creativity, family offices can continue to reap the benefits of these opportunities for years to come.


Bonds See 2023 Recession, Stocks Aren’t So Sure



The yield curve is one of the most robust recession predictors and has signaled a recession may be coming since mid 2022. In contrast, U.S. stocks as measured by the S&P 500 are up materially from the lows of last October and only just below year-to-date highs, seemingly rejecting recession fears. Yet, fixed income markets see the Fed potentially cutting rates by the summer, perhaps reacting to a U.S. recession.

The Evidence From The Bond Markets

The recessionary evidence, at least from fixed income markets, is mounting. The 10 yield Treasury yield has been below the 2 year yield consistently since last July. That is is called an inverted yield curve and has signaled a recession fairly reliably when compared to other leading indicators.

Building on that, fixed income markets see almost a nine in ten chance that the Federal Reserve cuts rates by September of this year. That’s something the Fed has repeatedly said they won’t do on their current forecasts. Yet, a recession could cause it to happen.

The Stock Market

In contrast, the stock market shows some optimism. The S&P 500 is up 7% year-to-date as the market has shrugged off fears of contagion from recent banking issues. In particular, tech stocks have rallied.

In contrast, more defensive sectors such as healthcare, utilities and consumer goods have lagged in 2023. This suggests that the stock market is taking more of a ‘risk on’ position and is perhaps less worried about the economy.


That said the stock market is a leading indicator of the business cycle, it may be that stocks see a recession, but are now looking past it to growth ahead and are factoring in the lower discount rates that a recession might bring as interest rates decline. Also, the U.S. stock market is relatively global, so the fate of the U.S. economy is a key factor in driving profits, but not the only one.

What’s Next?

Monitoring unemployment data will be key. Though the yield curve is a good long-term forecaster of recessions it is less precise in signaling when a recession starts. Unemployment rates can offer more accurate recession timing. Unemployment edged up in February, suggesting a recession may be near, but we’ve also seen monthly noise unemployment. Two similar monthly unemployment spikes during 2022 both proved false alarms.

However, if we see a sustained move up in unemployment from the low levels of 2022 that may be a relatively clear sign that a recession is here. Economist Claudia Sahm estimates that a sustained 0.5% increase in unemployment rate from 12-month lows is sufficient to trigger a recession. Unemployment rose 0.2% from January to February 2023, so maybe we’re on the way there. Of course, the jobs market performed better than expected in 2022 and it could do so again. Still, fixed income markets do suggest a 2023 recession is coming. Stock markets don’t necessarily share that view.

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Which States Have The Highest And Lowest Life Expectancies?



There’s a wide variance of life expectancies among the 50 states in the U.S., according to a recent report prepared by Assurance, an insurance technology platform that helps consumers with decisions related to insurance and financial well-being.

Figure 1 below shows the 10 states with the highest life expectancy, starting with Hawaii, the state with the highest life expectancy.

Figure 2 below shows the 10 states with the lowest life expectancy, starting with Mississippi, the state with the lowest life expectancy.

Assurance scoured life expectancy data prepared in January 2023 by the U.S. Centers for Disease Control and Prevention (CDC). With this data, Assurance created several easy-to-understand graphics that offer information about life expectancies.

Life expectancies are a basic measure of well-being

As measured by the CDC, life expectancies are a basic measurement of well-being in a broad population and not a prediction of how long an individual might live. The CDC measures the expected lifespan for a person born in the year of measurement. This measurement is calculated based on the assumption that the individual will live and die according to the rates of death that are prevalent in the measurement year for each age. There’s no assumed improvement or backsliding in the assumed mortality rates in future years for each age in the life expectancy calculation.


By contrast, an estimated lifespan for an individual would consider their current age, their gender, and some basic lifestyle information. It might also attempt to project future improvements or backsliding in mortality rates based on key factors.

Significant influences on life expectancy calculations

Leading causes of death in the U.S. are heart disease, cancer, and accidents in that order. These immediate causes are significantly influenced by factors in the population such as poverty rates, educational attainment, rates of obesity and smoking, access to healthcare, prevalence of violent crime, and the support people receive from federal, state, and local governments. All these factors can vary widely among different states, which can be a key reason why life expectancies vary by state.

When you think about it, all these factors also have the potential to influence a person’s quality of life. The measured life expectancy rate rolls up all these factors into one objective measurement of well-being that’s based on population data.

In addition to the factors listed above, mortality rates increased and life expectancies decreased in the past few years due to the Covid-19 pandemic. A recent article titled “Live Free And Die” summarized recent research results that show that life expectancies in most countries around the world rebounded after the Covid-19 pandemic but that they continued to decline in the United States. Many of the reasons cited in the article for the continued decline in U.S. life expectancies are the same or similar to the factors listed above.

NPR‘Live free and die?’ The sad state of U.S. life expectancy

Why should retirees care about the life expectancies reported here if these measures don’t predict your own lifespan? Life expectancy calculations indicate the general well-being of the entire population in your area. While the living conditions in your area can influence your own lifespan and quality of life, retirees should focus on their remaining life expectancy given their age. They should also consider how the factors listed above that influence life expectancies in the population might apply to them.

You can obtain customized estimates of your remaining life expectancy at the Actuaries Longevity Illustrator. Part of your planning for retirement is understanding how long you an an individual might live, instead of relying on generalized information about larger populations you see in the media.

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IRS Dirty Dozen Campaign Warns Taxpayers To Avoid Offer In Compromise ‘Mills’



Owing taxes can be stressful. Unfortunately, the actions of some companies can make it worse. As part of its “Dirty Dozen” campaign, the IRS has renewed a warning about so-called Offer in Compromise “mills” that often mislead taxpayers into believing they can settle a tax debt for pennies on the dollar—while the companies collective excessive fees.

Dirty Dozen

The “Dirty Dozen” is an annual list of common scams taxpayers may encounter. Many of these schemes peak during tax filing season as people prepare their returns or hire someone to help with their taxes. The schemes put taxpayers and tax professionals at risk of losing money, personal information, data, and more.

(You can read about other schemes on the list this year—including aggressive ERC grabs here, phishing/smishing scams here and charitable ploys here.)

Tax Debt Resolution Schemes

“Too often, we see some unscrupulous promoters mislead taxpayers into thinking they can magically get rid of a tax debt,” said IRS Commissioner Danny Werfel.

“This is a legitimate IRS program, but there are specific requirements for people to qualify. People desperate for help can make a costly mistake if they clearly don’t qualify for the program. Before using an aggressive promoter, we encourage people to review readily available IRS resources to help resolve a tax debt on their own without facing hefty fees.”


Offers In Compromise

Legitimate is a key word. Offers in Compromise are an important program to help people who can’t pay to settle their federal tax debts. But, as the IRS notes, these “mills” can aggressively promote Offers in Compromise—OIC—in misleading ways to people who don’t meet the qualifications, frequently costing taxpayers thousands of dollars.

An OIC allows you to resolve your tax obligations for less than the total amount you owe. You generally submit an OIC because you don’t believe you owe the tax, you can’t pay the tax, or
 exceptional circumstances exist.

Because of the nature of the OIC—and the dollars involved—the process can be time-consuming. It can also be confusing for taxpayers who may not have a complete grasp on their finances.

First, you must complete a detailed application, Form 656, Offer in Compromise. You must also submit Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-B, Collection Information Statement for Businesses, with supporting documentation (generally, bank and brokerage statements and proof of expenses).

You’ll also need to submit a non-refundable fee of $205 and payment made in good faith. The payment is typically 20% of the offer amount for a lump sum cash offer or the first month’s payment for those made over time. Generally, initial payments will not be returned but will be applied to your tax debt if your offer is not accepted. Payments and fees may be waived if the OIC is submitted based solely on the premise that you do not owe the tax or if your total monthly income falls at or below income levels based on the Department of Health and Human Services (DHSS) poverty guidelines.

The IRS will examine your application and decide whether to accept it based on many things, including the total amount due and the time remaining to collect under the statute of limitations. The IRS will also review your income—including future earnings and accounts receivables—and your reasonable expenses, as determined by their formula. The IRS will also consider the amount of equity you have in assets that you own—this would include real property, personal property (like automobiles), and bank accounts.


Before your offer can be considered, you must be compliant. That means you must have filed all your tax returns and paid off any liabilities not subject to the OIC. After you submit your offer, you must continue to timely file your tax returns, and pay all required tax, including estimated tax payments. If you don’t, the IRS will return your offer.

Additionally, you cannot currently be in an open bankruptcy proceeding, and you must resolve any open audit or outstanding innocent spouse claim issues before you submit an offer.


You can probably tell—it’s a lot to consider. You may want representation. A tax professional can help marshal you through the process and offer practical guidance, while communicating what fees could look like.

By contrast, according to the IRS, an OIC “mill” will usually make outlandish claims, frequently in radio and TV ads, about how they can settle a person’s tax debt for cheap. Also telling: the fees tend to be significant in exchange for very little work.

Those mills also knowingly advise indebted taxpayers to file an OIC application even though the promoters know the person will not qualify, costing taxpayers money and time. You can check your eligibility for free using the IRS’s Offer in Compromise Pre-Qualifier tool.

“Pennies On A Dollar”

What about those promises that taxpayers can routinely settle for pennies on a dollar? Not true. Generally, the IRS will not accept an offer if they believe you can pay your tax debt in full through an installment agreement or equity in assets, including your home. That’s why the IRS tends to reject a majority of OICs that are submitted. The acceptance rate is less than 1 in 3, according to the 2021 Data Book.

The IRS will generally approve an OIC when the amount offered represents the best opportunity for the IRS to collect the debt. It’s true that there’s a formula that the IRS uses to figure out how much they think they can collect from you. But there is some wiggle room to account for special circumstances, including a loss of income or a medical condition. It’s worth noting those are the exceptions, not the rule.


While submitting an OIC may keep the IRS from calling you, it doesn’t stop all collections activities—don’t believe companies that suggest that submitting an OIC will make your tax debt disappear. Penalties and interest will continue to accrue on your outstanding tax liability. Additionally, the IRS may keep your tax refund, including interest, through the date the IRS accepts your OIC.

You may also be liened. In most cases, the IRS will file a Notice of Federal Tax Lien to protect their interests, and the lien will generally stay in place until your tax obligation is satisfied.

Be Skeptical

An OIC is a serious effort to resolve tax debt and shouldn’t be taken lightly. Be skeptical—if it sounds too good to be true, it likely is. If you’re considering an OIC, hire a competent tax professional who understands the rules and is willing to level with you about your chances of being successful—including other options. Don’t fall into a trap that can make your situation worse.

MORE FROM FORBESIRS Urges Those Hoping To Help To Beware Of Scammers Using Fake Charities

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