Note: Family office due diligence refers to the process of independently validating financial, legal, operational, and commercial claims when participating in private equity co-investments or direct transactions, often without the institutional resources available to large firms.
According to the 2025 UBS Global Family Office Report, family offices now manage approximately $4.7 trillion globally. Private equity represents 21 percent of the average portfolio, while private credit stands at 4 percent, having doubled from 2 percent the prior year. Family offices now access private markets through multiple channels including traditional fund commitments, co-investments alongside sponsors, and direct transactions executed without fund manager involvement.
Co-investments typically eliminate management fees and carried interest on the invested portion, preserving more of the upside. Direct deals capture 100 percent of the gains while allowing families to deploy patient capital on their own terms. A 2024 survey by Bastiat Partners and Kharis Capital of over 75 family offices globally found that 50 percent plan to pursue direct deals in the next two years, while Goldman Sachs' 2025 Family Office Investment Insights report indicates that 39 percent intend to increase their private equity allocations in the coming year.
This shift fundamentally changes what the family office investment function must deliver. Evaluating a fund manager requires analyzing track record, team stability, and strategy differentiation. Underwriting a company requires verifying what management presents against hundreds or thousands of documents in the data room.
A typical private equity data room for confirmatory due diligence contains comprehensive business documentation. Financial statements and forecasts, cap tables and shareholder agreements, material contracts with customers and suppliers, employment agreements and compensation structures, intellectual property registers, regulatory filings and compliance reports, litigation documents, and insurance policies. Credit diligence adds loan covenants, collateral valuations, cash flow stress scenarios, and quality-of-earnings (QoE) analysis.
Extracting meaningful intelligence from this volume of documentation is time-intensive work. The median single-family office operates with just eight total staff, including only two dedicated investment professionals. These individuals often handle existing portfolio monitoring, new fund evaluations, and deal sourcing simultaneously. Weeks spent reading contracts while a sponsor waits for commitment decisions is not a realistic operating model.
The breadth is striking. We work with family offices that own NFL franchises and families who are LPs in major private equity firms. One week, the team is evaluating a healthcare services roll-up; the next, a manufacturing bolt-on; then a software platform. When you're moving across industries deal by deal, you may not know which customer contract terms matter most in each sector, which financial metrics to scrutinize, or where operational risk typically shows up.
The traditional response has been to outsource. Law firms conduct legal diligence, accounting firms perform quality-of-earnings analysis, and consultants handle commercial due diligence. A $75 million transaction generates approximately $230,000 in combined diligence costs. Larger deals can approach or exceed $900,000 in external advisory fees.
Family offices pursue co-investments and direct deals precisely because the fee structure is superior to fund commitments. When each transaction requires six-figure due diligence expenses, those savings begin to erode. A $10 million direct investment with $200,000 in due diligence costs effectively carries a 2 percent upfront drag, comparable to the annual fund management fees the family office sought to avoid.
The problem compounds with broken deal costs. Due diligence expenses incurred on transactions that ultimately do not close are sunk costs with no offsetting investment. For family offices evaluating multiple opportunities annually, these costs meaningfully impact the economics that made fee-free investing attractive in the first place.
The natural question is whether tools like ChatGPT or Claude can close the gap for family offices. These foundation models have transformed document interaction, and family office teams can use general-purpose AI tools to upload files and ask questions about them.
ChatGPT and Claude excel at conversational tasks and individual document analysis but are not designed to meet the precision and workflow requirements of investment due diligence. Their limitations become readily apparent in practice:
These differences compound when building investment memos that must withstand committee scrutiny.
ToltIQ enables investment professionals to systematically work through due diligence. For example, when beginning due diligence, a family office investment professional can start by analyzing the CIM and verifying management's claims against underlying documents. Then review financial statements for revenue trends and margin stability, query customer contracts for concentration risk or unfavorable terms, surface change-of-control provisions that could complicate the transaction, and check legal files for undisclosed litigation. Each answer includes citations to source documents for efficient verification. When dealing with industries that change weekly, ToltIQ prompts users with additional questions to drill down further, not just answer the ones they already know to ask.
Family offices have built meaningful private markets capabilities over the past decade. The teams are experienced, the networks are strong, and the capital is patient. The missing piece has been the infrastructure to conduct due diligence when facing data rooms with hundreds of documents and short decision windows. For family offices deepening their participation in private markets, the challenge is achieving institutional-grade diligence rigor without institutional cost structures. Purpose-built tools enable lean teams to analyze complete data rooms and deliver findings with institutional-level documentation at a cost structure that preserves rather than erodes deal economics.
If your team is managing trade-offs between deal economics and diligence capacity, let's discuss how ToltIQ can fit into your workflow.
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