Strategic Asset Allocation
for HNW Families –
Webinar Recording

In the face of market uncertainty, tariffs, and fluctuating interest rates, UHNW families are increasingly turning to alternative asset classes such as private credit and private equity. These assets are favored due to their typically lower volatility and less direct correlation with the broader economy. There’s a notable shift from traditional 60/40 portfolios (60% publicly traded equities, 40% liquid income-producing assets) to models like 40/30/30, which incorporate a significant allocation (e.g., 30-35%) to non-traditional asset classes. 

The illiquidity premium refers to the higher potential returns offered by certain alternative assets, particularly “closed-ended funds” (e.g., in private equity or real estate), where capital is locked up for an extended period (5-10 years). Investors accept this illiquidity in exchange for potentially significant capital multiplication over time. Historically, these asset classes had high barriers to entry, primarily accessible to pension funds, endowments, and foundations. However, over the last 6-8 years, and especially in the past 2.5-3 years, they have become significantly more accessible to ultra-high-net-worth individuals and, more recently, even retail investors, though with differing liquidity structures (e.g., “liquid alts”). 

The core philosophy revolves around a comprehensive “asset wealth succession and legacy plan” that extends beyond mere cash flow planning. It aims to understand the intergenerational power of wealth by considering not only financial capital but also human capital, social capital, and family values. This holistic approach combines quantitative financial planning with qualitative aspects like family goals, objectives, and purpose, ensuring wealth is preserved, grown, and responsibly deployed across multiple generations. 

Key principles include understanding a family’s liquidity needs for both daily life and significant purchases, assessing their risk appetite and aversion across various investment types (e.g., venture capital vs. private equity), and managing expectations for returns. Advisors help families differentiate between their desired returns and their actual return “needs” based on their long-term goals, such as doubling capital for future generations while maintaining their current lifestyle. Consideration of fees, inflation, and taxes is also crucial in the asset allocation process. 

This balance is achieved through strong “governance” and open “communication, communication, communication.” The wealth creator (first generation) typically prioritizes capital preservation, often having a low-risk appetite after decades of building wealth. The next generation, while perhaps not having earned the capital, may have a higher risk tolerance and a focus on capital growth, especially due to the “impact of the denominator” (dividing wealth among more households and future generations). Advisors facilitate dialogue to align these perspectives, finding investment strategies that preserve initial capital while still allowing for growth that meets the next generation’s needs. 

Stewardship is the philosophy that capital is not merely “owned” but is entrusted to the current generation to be used and improved for future generations. This concept, often intuitive to those with generational assets like farmland, emphasizes long-term responsibility over short-term gains. It guides investment decisions toward sustainable growth (e.g., aiming for a consistent 7% annual return rather than chasing higher, riskier yields) and alignment with family values. This focus on stewardship helps families resist the temptation to chase returns aggressively, which can lead to taking on excessive risk. 

Due diligence for wealth advisors is primarily focused on the portfolio managers, investment counselors, and fund managers themselves, rather than just the specific investments. They assess how these managers look after clients, what the client experience is like (including reporting and relationship consistency), and critically, the manager’s own due diligence process for their investments. There’s a strong preference for “family-to-family” relationships in the advisory space, as this often creates an immediate high level of trust and a shared understanding of generational wealth management and stewardship. 

Private credit involves lending money through private channels rather than traditional banks, often to businesses for operating capital or expansion, or to individuals for residential mortgages. It is currently experiencing dramatic growth, especially in Canada, largely due to banks bolstering their balance sheets post-financial crisis and focusing on their largest clients, leaving a significant demand for capital from other businesses and consumers. Private credit appeals to investors due to its ability to generate consistent distributions (cash flow), its typically lower volatility compared to public markets, and its potential for tax-efficient capital appreciation. Borrowers are attracted to private credit for its speed of access and flexibility in repayment terms. The trend shows a shift in investor preference from “owner” (private equity) to “lender” (private credit) in the current market.