Family offices still bet on AI and health care even as deals slow down

A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.

Deal-making may have rebounded on Wall Street, but investment firms of the ultra-wealthy are still moving cautiously. Family offices made 54 direct investments in September, down 46% on an annual basis, according to data provided exclusively to CNBC by private wealth platform Fintrx.

Despite the broader slowdown, billionaire family offices are still investing in mega-rounds for high-flying startups. Last month, the firms of Amazon founder Jeff Bezos and former Google CEO Eric Schmidt joined a $300 million seed round for Periodic Labs. Founded by former OpenAI and DeepMind researchers, Periodic Labs seeks to automate scientific research with artificial intelligence-powered robots running lab experiments.

Health-care and biotech startups also still garner interest from high-profile investors. Primary-care clinic group Harbor Health 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 the dean of Dell’s namesake 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 private-equity slowdown 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. Principal Mark Mitchell told CNBC that his offer was accepted within a month. Cos Bar had been held by a private equity owner for nine years and was the last deal in its fund, he said.

Mitchell founded his family office in 2015 after selling a majority stake in his home-healthcare business U.S. Medical Management to Centene. He later exited, receiving a total of $325 million, he said.

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

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

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

Mitchell, 60, has five children ranging from 6 years old to 30. His adult son and daughter founded an automotive business and clothing line, respectively, that are owned by MFO. Involving his children in the family office has helped keep them motivated to succeed, he said.

“My son is the first one in and the last one to leave every day, and he’s actively looking at real estate investments. And my daughter is actively running her company 14 hours a day, 7 days a week,” he said. “Sometimes the second generation of a wealthy family, in my experience, those adult children don’t grind after college. Mine are truly grinding, which also sets a good example for their younger siblings.”

In April, Mitchell bought women’s soccer team AFC Toronto. He said he initially invested because he was looking for a hobby, but he’s since become more involved with the team’s operations. It’s also brought the family together. Mitchell said his daughter is considering purchasing a women’s soccer team, his younger sons have started playing soccer, and his whole family attends the games.

“Going back to the multi-generational thing, it’s been wonderful for the family to focus on and really take in an interest in this,” he said.