Stephens Group brings PE know-how to family office space

Stephens Group, founded in 2006 by W.R. “Witt” Stephens, Jr and his sister Elizabeth, is not your typical single-family office.

The Stephens family fortune was built by their father, Witt Stephens, Sr., a “southern financier” who began making private investments in 1933, before the private equity or venture capital industries were well-established—and now his relatives continue that legacy with a family office that operates much like a private equity firm.

“While they’ve been in a lot of businesses and some of those businesses have become fairly substantial…the way they’ve made their money over the years is by partnering with private businesses and helping them grow,” said managing director Aaron Clark.

Until 2006, the entire Stephens family was involved in Stephens Inc., an investment bank. Witt, Jr and Elizabeth decided to start their own vehicle to focus on private equity investing. Unlike a lot of family offices, where the family must transition from another industry into private equity, the Stephens Group already has a long history.

“I think we tried to build and bring to the table a lot of the classic skill-sets that a good private equity partner can bring when they make an investment,” Clark told Buyouts. “There wasn’t some big transition for them to swallow, they’ve been doing this a long time.”

“When I was not in this world, I sort of pictured a chief investment officer in a corner office who has his pie chart and he’s allocating some to venture, some to timber and some to liquid large cap equities,” managing director Clay Hunter said. “That’s just not how we operate, and that’s not really how this family has operated for the better part of the last two or three generations.”

Both Clark and Hunter started out in investment banking. Clark worked as an investment banker at Stephens Inc. and followed Witt, Jr and Elizabeth to Stephens Group. Hunter came to Stephens from Harbour Group, and before that worked for Merrill Lynch & Co. in Chicago.

When asked about the push among family offices to make more direct investments, neither Clark nor Hunter minced words, saying they compete with some of the biggest private equity firms out there on a day-to-day basis, and families that want to get into directs need to be ready for that.

“You have to have the same confidence that a private equity firm would have to be competitive and effective, and that’s a real investment and a real commitment,” Clark said.

Stephens Group has about $1 billion in capital deployed at any given time, a small portion of Witt, Jr and Elizabeth’s total wealth. The firm does not have a fund. Investment focuses include commercial and industrial products, food and consumer products, software and tech-enabled services, and opportunistic investments that might be produced by the Stephens family’s network.

About two-thirds of the time, Stephens Group makes control investments, but will also do non-control or significant minority investments.

“We’ve certainly invested alongside executives and owners…we’ve invested with other funds, we’ve invested behind fundless sponsors, and we’ve invested with other families as well,” Hunter told Buyouts.

One of Stephens Group’s most recent acquisitions was Massachusetts-based Sound Seal, a company that manufactures equipment to control noise. Stephens announced the acquisition in March, and in June Sound Seal in turn acquired Illinois-based Noise Barriers.

Action item: read Stephens Group’s form ADV here.

Correction: A prior version of this report included two incorrect quotations. That report has been updated.