Family offices still banking on AI and healthcare, even as deals slow

A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide for wealthy investors and consumers. Register to receive future editions, straight to your inbox.

Trading may have rebounded on Wall Street, but investment firms for the ultra-rich remain cautious. Family offices made 54 direct investments in September, down 46% on a year-over-year basis, according to data provided exclusively to CNBC by private wealth platform Fintrx.

Despite the widespread slowdown, billionaire family offices continue to invest in mega-rounds for high-flying startups. Last month, companies Amazon founder Jeff Bezos and former Google CEO Eric Schmidt has joined a $300 million funding round for Periodic Labs. Founded by former OpenAI and DeepMind researchers, Periodic Labs seeks to automate scientific research with AI-powered robots running laboratory experiments.

Healthcare and biotech startups also continue to attract interest from high-profile investors. Primary care clinic group Harbor Health has raised $130 million from Michael Dell’s DFO Management, Breyer Capital and Martin Ventures. The startup’s chief medical officer, Dr. Clay Johnston, was previously dean of Dell’s eponymous medical school at the University of Texas at Austin. Much of the funds will be used to expand Harbor’s insurance offerings and open more clinics.

The slowdown in private equity has also left room for family offices to make opportunistic bets. In September, Birmingham, Michigan-based Mitchell Family Office acquired luxury beauty retailer Cos Bar for an undisclosed amount. Director Mark Mitchell told CNBC his offer was accepted within a month. Cos Bar had been owned by a private equity owner for nine years and was his fund’s last transaction, he said.

Mitchell founded his family office in 2015 after selling a majority stake in his home health care business, US Medical Management, to Centene. He then left the group, receiving a total of $325 million, he said.

Having made his fortune in health care, Mitchell primarily invests in the sector, from adolescent psychiatric hospitals to bone marrow harvesting technology.

However, MFO is increasingly investing in other areas to meet the needs and interests of the Mitchell family, he said. In Cos Bar’s case, its high-end locations will be used to showcase AI-powered smart mirrors developed by his wife Colby’s startup, Swan Beauty. Priced at $695, the mirrors analyze skin tone to recommend beauty products and can also be used to virtually try on makeup.

“I would say the latest investments we’ve made are less, let’s say ‘Mark Mitchell patriarchal decisions’ and more second-generation decisions,” he said.

Mitchell, 60, has five children ranging in age from 6 to 30. His adult son and daughter founded an automobile company and a clothing line, respectively, owned by MFO. Involving his children in the family office helped them stay motivated to succeed, he said.

“My son is the first to arrive and the last to leave every day, and he actively studies real estate investments. And my daughter actively runs her business 14 hours a day, seven days a week,” he said. “Sometimes, in my experience, these adult children are the second generation of a wealthy family. They don’t make it after college. Mine really do, which sets a good example for their younger siblings as well.”

In April, Mitchell purchased the AFC Toronto women’s soccer team. He said he initially invested because he was looking for a hobby, but has since become more involved in the team’s operations. It also brought the family closer together. Mitchell said her daughter was considering buying a girls’ soccer team, her younger sons had started playing soccer and her entire family attended the games.

“Going back to the multigenerational issue, it’s wonderful that the family is really focused and interested in it,” he said.