Private companies are attracting large investment from family offices.

• According to a survey by BNY Mellon Wealth Management, a majority of family offices invested in private companies or provided lending last year, with at least six direct investments.
• By investing directly, they can provide their expertise and management advice, along with their capital, to the portfolio companies.
• Family offices are becoming increasingly popular among private companies as banks become more cautious with lending and private equity firms are doing fewer deals.

Private equity funds are increasingly being established by family offices and investing directly in companies, as per a recent survey.

Last year, 62% of family offices made at least six direct investments, including buying a stake in a private company or providing lending, according to a survey by BNY Mellon Wealth Management.

In 2024, a majority of family offices (71%) plan to increase their direct investments. With the number of family offices growing rapidly and their assets reaching an estimated $6 trillion or more, the influx of family office money into private companies could significantly impact private markets and the private equity industry.

According to the report, family offices can take advantage of direct investment to utilize their distinctive abilities.

Private investment arms of wealthy families, known as family offices, are often founded by entrepreneurs who excel in running private companies. By investing directly, they can bring their expertise, management advice, and capital to the portfolio companies.

As banks tighten lending and private equity firms do fewer deals, family offices are becoming increasingly attractive to private companies due to their ability to offer more patient capital, typically investing for decades or even generations.

According to the report, private market deals that are successful can capture the illiquidity premium, which means they have the potential to achieve higher returns than public markets or pooled private market investments.

Private equity firms and family offices are jointly investing, which can lower fees and enhance carried interest payments.

Family offices often face challenges when it comes to direct investing due to their limited expertise and range. Conducting thorough due diligence can be challenging for small family offices, leading many to seek assistance from larger wealth management firms and deal advisors.

Nearly half of family offices seek input from an investment consultant while doing their own internal due diligence on direct investments, despite two-thirds of them doing so independently.