Asset Allocation

Asset allocation is widely regarded as one of the most consequential decisions in managing significant wealth. The basic idea is that different asset classes — broad categories of investments with distinct risk, return, and liquidity characteristics — tend to behave differently under the same economic conditions. By spreading capital across several categories, families aim to reduce the impact of any single asset class performing poorly. The Investment Policy Statement typically encodes the family's target allocation and the acceptable range around it.

For a family office, asset allocation extends well beyond the familiar split between public equities and fixed income. Families commonly include real estate, private equity, private credit, hedge funds and other alternatives, and cash. The right mix depends on factors such as the family's time horizon, liquidity needs, tax situation, and comfort with assets that cannot be sold quickly — a quality known as illiquidity. This is why liquidity management is always considered alongside allocation decisions.

A hypothetical example: a founder who sold her logistics company receives an illustrative $50 million in proceeds. Near-term, she needs liquidity for living expenses and potential business reinvestment. Her advisors help her think through an allocation that keeps a meaningful share in liquid assets while allowing a portion to pursue less liquid, potentially higher-returning private investments over a longer horizon.

A common confusion is treating asset allocation as a fixed, set-and-forget decision. In practice, families and their advisors revisit allocation regularly — when family circumstances change, when markets shift valuations significantly, or when the investment committee determines the portfolio has drifted meaningfully from its targets. Rebalancing — selling assets that have grown beyond their target weight and adding to those that have shrunk — is a routine part of maintaining the intended allocation.