Mary Jo, you’ve worked with many founders who have just had a major liquidity event, either selling part or all of their business. What’s the first thing you notice about this transition?

Mary Jo: First of all, it’s an amazing achievement and these business owners have done what most only dream of—built something from the ground up. The shift from being an operator—making daily decisions—to the owner of capital is liberating but can also be disorienting. The question becomes: “What do I build next?” It’s not just a change in your balance sheet, it’s a change in your identity. We put ourselves in our clients’ shoes because we know this is a deeply personal transition. We’ve seen it many times, and we understand how important it is to honor the achievement and prepare individuals and their families for the excitement and uncertainty that comes with this evolution.

What are some of the most common questions you hear from first generation founders at this stage?

Mary Jo: The sale creates space for broad strategy. Founders often ask, “What do I want this capital to do for me, my family, my community?” It’s not about retiring; rather, you’re redirecting your energy and vision to architecting something new. And everyone does this in their own time and way. The core is defining your purpose and the impact you want to have. I love helping my clients navigate this process because it’s truly so different for everyone.

How do you help founders navigate the decision between managing a simple portfolio and building a broader family enterprise?

Mary Jo: The first structural decision is: What kind of platform are you building? Some founders want to manage a portfolio only that is focused on wealth preservation, stability, and simplicity post-sale. Others want to design a platform—a family enterprise that integrates capital, family legacy, and future purpose. So really, this is the founder’s next enterprise, and the product is capital and impact. I encourage founders to design before deploying a single dollar. Think about the architecture, the purpose, and the right governance structure. It’s about building an ecosystem, not just a portfolio.

You’ve spoken about the importance of “edge” in building the next chapter. Can you share what that means in practice?

Mary Jo: A founder’s “edge” is the unique combination of expertise, network, and values that made them successful with their business. I’ve seen clients leverage their industry knowledge to invest directly in businesses they understand, or use their networks to co-invest with trusted peers. Others focus on impact—investing in local communities or causes they care about. The point is, your capital is now your product, and you have the opportunity to shape a new future that’s as entrepreneurial as your first act. Most importantly—you will hear me repeat this—know your “edge” and leverage it like crazy. This is your personal alpha that will drive success of your family office platform. Whatever shape it takes. Consider buying the commodity functions where that infrastructure will support your edge.

What are some pitfalls you help founders avoid as they build their family office or investment platform?

Mary Jo: One common pitfall is starting out trying to do everything in-house, which can be overwhelming and inefficient. There may be a time for that but it’s much easier to transition over time rather than try to do everything at once. You don’t have to build your own investment team from scratch. We act as a fully-integrated investment team for our clients, looking at the whole picture—operating businesses, future ventures, liquidity, spending, and more. Another pitfall is losing sight of governance. Even the best ideas can get lost without clear decision-making structures. We help clients design governance models that support their vision and keep the family aligned.

How do you see your role as an advisor to founders?

Mary Jo: I see myself as a partner in their next act. My job is to listen, to understand what makes each founder unique, and to help them find solutions—not sell products. We put ourselves in our clients’ shoes, and that’s not just a saying, it’s how we approach every relationship. We have been working with families and business owners for decades, we learn from them and their objectives, and we solve the things that they want to solve. When you add that up over three or four decades, it allows us to be more impactful advisors to the next family that comes to us for our advice. One of the real value-adds we offer our clients is that because we work with so many business owners and investors, we can connect clients to a broader network for advice and opportunities beyond the portfolio.

What advice would you give to a founder who’s just sold their business and is wondering what comes next?

Mary Jo: Take your time. The transition from operator to architect is significant, and it’s okay to feel a bit unmoored at first. Start by defining your purpose: what do you want your capital to achieve? Then, design the structure that will help you get there. Don’t be afraid to lean on experienced partners who understand the founder’s mindset and can help you build something lasting. Your next chapter can be just as meaningful—and entrepreneurial—as your first.

What is “The Guiding Equation”?

Mary Jo: I often remind founders that edge = expertise + network + values. Your experience as an operator is a core competitive edge as a family office enterprise builder. Your capital is the engine to shape a new future and execute your vision. Some see this time as their second enterprise where the first one was to build wealth and the second allows them to build their legacy.

The post From Founder to Investor: Helping Founders Turn Business Success into a Lasting Legacy appeared first on Cambridge Associates.

Here’s a recap of some of the topics we discussed:

Prioritize Open Communication and Family Engagement

Managing wealth is not just a technical endeavor. It’s deeply personal and often intertwined with family dynamics. But it’s imperative to initiate open, honest conversations about wealth, values, and legacy within families. While these discussions can be challenging, they are critical for building trust, setting shared goals, and preparing future generations for stewardship. Next generation investors should work with family members to create an environment where questions are welcomed, and where each family member’s voice is heard and respected.

Invest with Purpose and a Long-Term Mindset

There’s power in aligning investments with personal values and a broader sense of purpose. Whether through impact investing, philanthropy, or supporting causes like women’s sports and entrepreneurship, next generation investors have the opportunity, and responsibility, to use their capital to drive meaningful change. This requires clarity about one’s goals, a willingness to think beyond short-term returns, and the courage to pursue opportunities that reflect both financial and societal ambitions. Legacy is built not just through wealth accumulation, but through the positive impact one creates for future generations.

Embrace Lifelong Learning and Peer Collaboration

Next-generation investors are encouraged to seek out educational opportunities—not just in technical investment skills, but also in areas like family governance, philanthropy, and responsible investing. Engaging with peers who share similar challenges and ambitions can provide invaluable perspective, foster accountability, and help build a supportive network. The willingness to ask questions, share experiences, and learn from both successes and setbacks is a hallmark of effective leadership and stewardship.

Build a Trusted Network of Advisors and Mentors

Personal success is bolstered by advisors and mentors who offer both expertise and integrity. Next generation investors should be proactive in identifying professionals who are not only technically skilled but also aligned with their values and long-term vision. These relationships can help navigate complex decisions, provide objective guidance, and serve as sounding boards for new ideas. Building this network early and nurturing it over time is essential for making informed choices and maintaining confidence in one’s investment journey.

Download the report for the full list of takeaways, or explore our collection of resources to dive deeper into how future family leaders can shape legacies and generate success.

The post Advice for Next Generation Investors appeared first on Cambridge Associates.

Yet, portfolio management for families presents distinct complexities. Family portfolios often exist within a broader ecosystem of wealth, which has a meaningful impact on investment strategy and can inform critical inputs such as spending needs and tolerance for risk. Furthermore, family portfolios are often influenced by individual preferences, such as a desire to align investments with values, which can impact investment objectives and priorities. Taxes, a major factor for many families, also can affect asset allocation strategy, as well as implementation. In addition, family portfolios are inextricably linked to life cycles, which highlights the need for effective governance, and for regular review of the assumptions underpinning the investment strategy as generations transition and objectives change.

To build a portfolio that is best positioned to meet a family’s long-term goals, a deep understanding of the influencing factors unique to each family is required. Without this, a family risks establishing a strategy that miscalibrates key elements such as risk tolerance or liquidity needs, or that ultimately has low buy-in and support among family members—this can be detrimental, especially during times of market stress. Investing the time to set up a strong foundation grounded in the unique needs and preferences of the family is critical to driving better portfolio outcomes over the long term.

This paper explores the influencing factors and special considerations that are key to successful portfolio construction for private investors and wealthy families, and that are fundamental to the work that we undertake for our clients. We discuss the elements of a Family Enterprise Review and how it informs the establishment of a Policy Portfolio. We then describe how customized implementation and ongoing oversight support success. By following the blueprint we lay out, families are best positioned to establish an investment strategy that is suited to their unique circumstances and built for long-term success.

The Foundation: Investment Principles for Long-Term Investors

Before describing the factors that most significantly influence investment strategy and implementation for families, it is worth revisiting the core principles of Cambridge Associates’ overarching investment philosophy. This philosophy espouses these fundamental elements:

• A long-term investment horizon;
• Diversification, not only to reduce variability of returns, but also to protect against permanent loss;
• Limited use of tactical deviations from long-term asset allocation targets, primarily informed by extreme valuations;
• Use of active managers where we expect they will add long-term value, after fees and expenses; and
• A focus on risk-adjusted returns and active oversight of portfolio risk factors.

Family portfolios of sufficient size and scale can leverage this foundation of institutional investment management principles. ¹ However, a number of issues can make family portfolios significantly more complex than those held by institutions, and these influencing factors must be considered as part of a holistic portfolio construction process.

Influencing Factors for Families

It is often the case that the diversified investment portfolio is simply one part of the total wealth of a family. In addition, many factors that are unique to family and individual wealth can impact both portfolio objectives and strategy. (Figure 1 illustrates, by way of example, the predominance of some of these issues among Cambridge Associates’ private clients.) For these reasons, a holistic approach to portfolio construction—one that considers a family’s entire ecosystem inclusive of its distinguishing factors and holdings—sets the foundation for success.

Concentrated Holdings

Cambridge Associates works with many families to invest their liquid assets after the sale of a business or some other liquidity event. However, in many cases, families maintain significant exposure to a concentrated holding after such an event. For example, at least 50% of the firm’s private clients own one or more operating companies. In addition, more than 40% invest in direct real estate, and a significant percentage hold concentrated stock positions—often from the original source of wealth—within their total portfolio.

Concentrated wealth in its myriad forms must be considered when developing an asset allocation for the diversified investment portfolio. In many cases, such concentrations can result in a lack of sufficient diversification, which can present significant risks. Some concentrations, such as real estate or exposure to a specific industry, may be obvious; however, “hidden” concentrations, such as country- or region-specific overweights, might not be fully recognized. When developing a portfolio for families, an awareness of these concentrations and an intentional approach to managing them—or around them—is an important element of risk management.

Spending Needs

Families often have different needs from their investment portfolios, which can result in a much wider range of investment objectives and spending requirements than is the case for their institutional counterparts. For instance, endowments and foundations’ annual spending is typically tied to grantmaking activities or the level of required operational support—for example, the required 5% that private foundations must distribute each year, or the typical target spending range of 4% to 5.5% for colleges and universities. Because more varied objectives and needs often exist within a single family, a customized approach to managing each family member’s wealth is called for.

When developing an asset allocation for families, it is essential to understand the level of spending the diversified investment portfolio (or each portfolio, if there are multiple family members) must support. Typically, this draw may be for annual personal spending and taxes and to meet capital calls when building an allocation to private investments.

Beyond these typical needs, other events also can increase a family’s reliance on the diversified investment portfolio. The portfolio might be called upon to support a family’s operating business or a real estate investment in need of cash. Or, it could be tapped as a source of capital for a compelling direct investment in a sector where the family has deep expertise. Alternatively, a family whose annual spending needs are funded by a family business or leased property might need to increase the draw from the diversified portfolio if these cash flow sources were to dry up unexpectedly.

Families that carefully plan for a range of spending scenarios and manage portfolio liquidity with spending in mind are better prepared to navigate unexpected events and better positioned to act when compelling opportunities arise. Well-prepared families can also reduce the risk of permanent loss of capital by avoiding unplanned spending that must be met during a market decline.

Investment Objective and Risk Tolerance

Many families behave similarly to institutions—they have a multi-generational mindset and a similar desire to grow the portfolio net of any spending, inflation, and taxes (a big influencer, discussed below). These families must be comfortable taking risk to meet their long-term objective.

But some families take a more conservative approach, with an eye toward balancing growth and preservation of capital. For these families, the value of “sleep at night” liquidity and preservation on the downside in volatile markets is more important than participating in the final uptick of a market rally.

The role the diversified portfolio plays in the total family ecosystem is an important determinant of investment objective and risk. For example, a family that takes significant risk outside the portfolio with higher-risk real estate development projects or a substantial investment in an early-stage business may desire a more conservative posture for the diversified investment portfolio.

Aligning the portfolio with a family’s investment objective and tolerance for risk is essential to managing through inevitable periods of market volatility and avoiding decisions born out of fear and uncertainty, which can result in permanent destruction of value.

Taxes and Estate Planning

The only constant for most families is that taxes matter. However, the extent to which they matter and exactly how specific tax rates and tax considerations affect each investor and portfolio strategy will vary greatly. In the United States, for example, the fact that families are generally subject to taxes has widespread implications on portfolio construction. Our general experience is that taxes can cost the portfolio somewhere around 1% to 2% each year; minimizing this drag is an important element of meeting a family’s long-term wealth preservation and growth goals.

All else equal, the consideration of taxes should impact both asset allocation and implementation decisions. For instance, families that can tolerate the illiquidity can be well served by allocations to private equity and venture capital. These investments, in addition to offering significant return potential over time, can offer the dual tax benefits of deferred returns and long-term capital gain treatment. In addition, taxable portfolios will often use managers that exhibit lower portfolio turnover and will generally have lower exposure to most quantitative strategies that trade positions more frequently, or to strategies that derive a large portion of their return from yield (versus more tax-efficient capital appreciation). Of course, the use of municipal bonds in lieu of taxable fixed income is a major differentiator between endowment and family portfolios. Families in many other countries outside the United States, such as those in Canada, can also be subject to income taxes. Even for families and entities in jurisdictions with no income tax, taxes are still an important factor in vehicle selection, as potential withholding and other investment-level taxes must be taken into account.

Most families have undertaken sophisticated estate planning to transfer assets as efficiently as possible to the next generation. This planning may include the establishment of a wide range of trusts or other entities or the use of strategies such as intrafamily loans. The terms of each of these types of trusts, entities, or other arrangements must be understood, as they may have important implications for asset allocation and portfolio implementation. For example, distribution requirements or limitation of a trust may impact the liquidity or income needs of a portfolio, which could, in turn, impact the asset allocation or implementation decisions.

Currency

Many global, multi-generational families have family members spread across countries, all of whom may be spending in different currencies subject to fluctuations in global exchange rates. For instance, more than 40% of Cambridge Associates’ non-US clients invest across multiple currencies. For such investors, it is crucial to consider a portfolio from a multi-currency perspective. Issues such as spending rate, currency adjustments, and currency-hedging strategies will be heavily affected by the country of domicile of individual family members, calling for a highly customized approach that accounts for how fluctuating currency values can impact myriad aspects of the portfolio.

Sustainability and Impact

For certain families, aligning investments with their values is of paramount importance. Some families, for instance, often consider sustainability and impact—frequently focused on the environment or on social justice—when making investment decisions. However, for multi-generational families, the level of interest in making impact-related investments may vary greatly across generations. Working through differences about values and goals and clarifying priorities can help ensure alignment among family members. In many ways, building a portfolio that incorporates impact investments to meet the goals of all stakeholders involved is emblematic of the need for a customized approach in working with family portfolios.

Portfolio Construction for Private Investors

The factors described above are influential in developing the right long-term investment strategy for a family. Armed with this information, and following several essential steps, a portfolio strategy that serves each unique investor can be built (Figure 2).

Step 1: The Family Enterprise Review

To fully understand and incorporate each family’s complexities into the long-term investment plan and ensure that the diversified investment portfolio meets the needs of all stakeholders involved, a Family Enterprise Review is the crucial first step in portfolio construction.

This review, which draws on best practices of institutional portfolio management, entails working with each stakeholder to gain a full sense of the key issues that will inform investment policy setting and, later, implementation. The broad scope and nature of the topics covered in this Review are summarized in Figure 3.

The expected key findings from the Family Enterprise Review include:

• An understanding of the appropriate purpose and structure for the investment portfolio;
• Short- and long-term financial objectives, spending and liquidity requirements, and time horizon(s) for the portfolio(s);
• A return objective and risk tolerance for the portfolio(s); and
• Additional parameters (e.g., the impact of assets held outside of the portfolio, tax considerations, the desire to engage in impact investing, themes of interest, biases, exclusions, etc.).

While these issues may seem straightforward, the specifics may differ for each member of the family. For example, a first-generation family member may have a low risk tolerance and a desire to use portfolio cash flows to support current living expenses. Meanwhile, a fourth-generation family member may be more comfortable with risk and illiquidity. The Enterprise Review can help families understand the range of objectives and risk tolerance among family members.

Knowledge of these differences can serve as an important factor in determining the optimal investment structure for the family. For example, family members that have similar long-term goals, spending, and risk tolerance, and can coalesce around a single asset allocation, might employ a relatively straightforward investment structure. In contrast, a family that has very different needs among family members might require an investment structure that can accommodate customized asset allocations. Of course, customization breeds complexity and expense and can reduce the benefits of scale, so families should consider the optimal balance in meeting each stakeholder’s needs.

Finally, the Family Enterprise Review can help families gain insight into the most appropriate family governance structure. Who will be the primary decision maker(s)? Who has defined authority to make decisions on behalf of the family? Is there a succession plan so that decision-making authority can evolve over time? Is there a plan to provide investment education to younger family members? Answers to questions such as these often are key outputs of a comprehensive Review and are integral to formulating the appropriate governance model.

A well-defined and transparent decision-making process is essential for the long-term success of both the client-advisor partnership and the investment portfolio. While critical, there is no single way to create this structure. On one end of the spectrum, for instance, a family could establish a board of trustees to oversee portfolio decision making. On the other hand, one individual could act as the sole decision maker. Various models exist between these two extremes, reflecting the preferences of each family, as reflected in Figure 4. The key is to decide on the most effective governance structure for the family, with clear roles and responsibilities.

Step 2: Policy Setting

At the conclusion of the Family Enterprise Review, the purpose of the portfolio(s), return objectives, and tolerance of risks will be established, which then allows policy setting at the asset class level to begin. Generally, the overarching goal for most portfolios is to maximize returns for an appropriate and pre-determined level of risk. To do so, the right balance must be struck between assets focused on capital appreciation, diversification, and protection against macroeconomic risks. Thus, the process for setting a portfolio’s investment policy generally includes:

• Reviewing the roles of various asset classes in the portfolio and establishing an asset allocation;
• Evaluating portfolio liquidity needs; and
• Drafting an Investment Policy Statement (IPS).

Asset Allocation. Asset allocation is the primary driver of long-term returns. For families and institutions alike, the basic building blocks of portfolio construction are similar. Fundamentally, how these building blocks are assembled and the balance between them are key factors in meeting an investor’s long-term investment objectives.

As depicted in Figure 5, each asset class has a different risk/return profile, and each plays a distinct purpose in the portfolio. The long-term target allocation for each asset type is thus set based on the strategic role that it should ultimately play in the portfolio. In addition, an allowable range for each asset class enables discipline around rebalancing and gives guidelines for potential tactical positioning. The combination of asset classes, and an awareness of their underlying risk factors, also creates the foundation for a crucial tenet of portfolio management: diversification.

Families that are subject to taxes additionally should consider after-tax returns when setting their asset allocation policy. For example, as discussed previously, higher allocations to tax-efficient private investments may be appropriate for families that can tolerate the illiquidity. Further, allocations to investments which derive a large portion of total return from current income (e.g., high-yield bonds, corporate bonds, private credit strategies, and bank loans) are typically less desirable due to the tax consequences, unless extreme valuations merit considering a tactical allocation or the investments offer diversification or other important benefits to the overall portfolio, notwithstanding their higher tax drag.

Portfolio Liquidity. Often overlooked—but just as crucial as the actual asset allocation—is a full evaluation of portfolio liquidity. Some assets will be highly liquid, while others (e.g., some hedge funds and private investments) will be semi-liquid to highly illiquid. Striking the right balance between the two is vital, and a good policy- setting process will include a stress test of the portfolio’s construction to ensure that liquidity will be sufficient—in both good times and bad.

The Investment Policy Statement. The policy-setting process concludes with the construction of a well-defined Investment Policy Statement (IPS). This statement provides a roadmap for all investment decisions and is highly personalized to the individual goals of the diversified investment portfolio. An IPS should include the portfolio’s long-term return objectives, allowable risk levels, time horizon, liquidity provisions, and spending needs, along with the policy asset allocation targets and policy benchmarks. If the family wishes to incorporate sustainability or impact objectives, these also should be included in the IPS. To allow for easy reference by all decision makers, a streamlined IPS that excludes extraneous language is recommended.

An IPS is intended to be a long-term plan that should withstand various market and macroeconomic gyrations. Properly set, it should rarely be adjusted. However, when the facts change, an adjustment in the plan may be warranted. Unlike perpetual institutions, families contend with human life spans, shifting family dynamics, and generational transitions. Events within the family ecosystem—for example, a sale of a business or an alteration to an estate plan—can also occur. For these reasons, an annual review of the IPS, with a focus on any changes to the foundational assumptions which ground it, is a best practice to ensure the IPS continues to reflect the family’s objectives.

Step 3: Implementation & Management

After the portfolio asset allocation policy has been set and the IPS completed, the focus can shift to implementation and management, which, yet again, should entail a customized approach.

For instance, while we typically make phased investments in newly constructed family portfolios, the details of the implementation process, including the timing and size of investments, will vary greatly from family to family, depending on multiple factors.

Once a portfolio is fully implemented, best practices for risk management and active monitoring of managers apply to both institutions and families. However, some differences exist in practice.

For instance, rebalancing is an important aspect of portfolio risk management, yet the cost of doing so can be particularly high for tax-paying families, depending on embedded taxable gains and their character. Thus, while it remains an important discipline, taxable families may in practice be better served by rebalancing less frequently or by using portfolio inflows to rebalance allocations without realizing taxable gains.

On a related note, making a manager change can be costlier for tax-paying families. To make a switch, one must have confidence that the newly selected manager is likely to outperform the existing manager, net of any taxes paid on realized gains at exit.

Finally, when allocating capital to an investment manager, families must pay heightened attention to selecting the vehicle or share class that is appropriate for their tax status, currency, and domicile. Given the complexity of the financial ecosystem for many global families, vehicle selection requires careful review.

Step 4: Oversight & Measurement

Finally, ongoing oversight and measurement against stated objectives is critical. All family portfolios should have well-defined policy benchmarks against which investment results will be measured. These benchmarks should represent the overall portfolio strategy and are useful not only in holding family principals, staff, and external advisors accountable over the long term, but in enabling families to effectively evaluate the success of their portfolio strategy against relevant, meaningful, and understandable metrics.

While they are essential to all portfolios, benchmarks will vary for each investor and often are expressed differently for institutional versus private investors. Institutions, for instance, can be highly sensitive to performance against established industry benchmarks and may measure their investment portfolios against comparable peers. In contrast, some families may focus less on returns relative to a benchmark but instead measure success in absolute returns. While the appropriate measure will vary by investor, the selected benchmark—as described in our paper on the subject—serves as the primary reference point for evaluating one’s investment decisions. Thus, establishing the investment policy benchmark is an important final step in portfolio strategy construction and warrants ample focus.

An Enduring Structure, Adapted Over Time

The investment philosophy we have applied to portfolios for over forty years grounds our approach to investing portfolios for families of substantial wealth. But it is only the foundation. To fully frame and build long-term, successful portfolios for private investors and families, a deep understanding of each family’s distinct goals, influencing factors, and ecosystem is required. By incorporating these unique dimensions—gained through the Family Enterprise Review—within a deliberate process of highly customized portfolio design and implementation, the most effective portfolio for each unique family can be built. This portfolio blueprint, however, must continue to evolve over time as the influencing factors underpinning a family’s investment strategy and implementation shift. A deep commitment to diligent monitoring and ongoing recalibration can promote continued relevance and enduring success as markets, needs, and generations change.

Footnotes

1. While there is no definitive asset size at which institutional investment practices are appropriate for individual investors and families, specific portfolio and investment strategies are most effective at investable asset levels above $100 million. For a point of reference, Cambridge Associates’ average private client portfolio size is $350 million. This figure comprises the assets under advisement for private clients worldwide that use the firm for portfolio advice or management and receive performance reporting from Cambridge Associates.

The post Portfolio Construction: A Blueprint for Private Families appeared first on Cambridge Associates.

The Advantages of Private Fund Investments

Benchmarked Return Potential

Private markets can add considerable value to family portfolios. Yet, when it comes to evaluating the performance potential of direct versus fund investments, the landscape differs significantly. The figure shows how private investment funds—as measured by Cambridge Associates (CA) benchmarks—have outperformed their public market equivalents over the past 20 years. It is worth noting that these benchmark returns are net of all fees, demonstrating the strong return potential of PI funds despite higher associated costs.

Although CA uses proprietary asset class benchmarks for private investments, standardized public benchmarks for direct investments do not exist. The bespoke nature and complexity of directs often requires investors and their investment managers to instead rely more heavily on their own qualitative assessments and judgments related to the intrinsic value of the asset.

Greater Geographic Reach

Families who focus only on a local market or region may miss a large part of the investment universe. Investors relying solely on a domestic portfolio risk becoming too concentrated while also forgoing opportunities to invest in leading companies domiciled in foreign markets. The broader the investment options, the higher the bar is raised. What’s more, investment talent is everywhere. We believe PI fund managers that specialize in specific markets, rather than having a global focus, are often better positioned to outperform. For example, a family with an operating business in Europe may seek to further globalize their investment exposure by seeking US-focused fund opportunities. Often, a fund-specific strategy is designed to complement a direct portfolio, augmenting the “in-house” resources of the family office.

Expanded Sector Allocations

Similarly, it can be difficult to source direct investment opportunities outside of the specific sector where a family has built their wealth and networks. And if deals are sourced, it can be challenging to develop the know-how required to be an effective investment partner. Expertise in one sector may not translate to expertise in another. For example, it would be difficult for a family with a background in software to leverage their knowledge and capabilities in an industrial strategy requiring large capital investment and manufacturing knowledge—or vice versa. Yet, both sectors should be considered as part of a family’s diverse investment opportunity set. PI fund investments can serve as a conduit to expand a family’s investable universe beyond sectors familiar to them. Relationships with general partners (GPs) can also provide access to professionals and CEOs outside of the family’s typical investment network, which can have a strategic benefit to other businesses in the portfolio.

Opportunities Across Various Stages

Unlike directs, PI funds offer families the opportunity to balance allocations across the PI spectrum to help manage asset class–specific risk. For example, the risks and returns of an early-stage venture opportunity are different from those in a mega-cap buyout strategy. While it is possible to invest across different asset classes and life cycle stages with direct investments, it typically requires managing a larger number of individual investments compared to fund investing. PI funds invest in companies at various stages of their life cycle, frequently specializing within a certain range of business development. Fund investing is also more capital efficient for diversification, especially for families with a smaller PI budget. Having multiple fund investments that target different deal stages can help reduce the impact of any one investment performing poorly. It also has the potential to provide differentiated sources of return and cash flow profiles.

Opportunities Across Different Deal Sizes and Co-investments

Often, large- or mega-cap direct deals—which can range from $10 billion to more than $200 billion—can be challenging for families to secure with participation dependent on the size and scale of the investors involved. Most direct deals tend to be focused on small- and mid-market segments. Through PI funds, families who may otherwise be left out can allocate to a diverse range of market caps, including small-, mid-, and large-cap investments. This can help improve the stability of portfolio returns and enhance their protection against downside risk. Additionally, PI funds offer professional management, diversification, and access to exclusive investment opportunities that might not be available through direct deals alone.

Co-investments provided by a GP to its limited partners (LPs) offer another pathway for families to engage with investment opportunities that might otherwise be inaccessible. They allow families to invest alongside a fund in specific deals, often with no or substantially reduced management fees or carried interest compared to what would typically apply to fund investments. This may enhance the potential returns on those investments. For families of wealth, co-investments represent a compelling way to gain more direct exposure to high-quality opportunities, while leveraging the expertise and due diligence capabilities of the fund managers. This approach can not only broaden the investment horizon but further align the interests of the investor and the fund manager, helping foster partnerships that could lead to other strategic investment opportunities. Investors should keep in mind that the most attractive co-investment opportunities offered by PI fund managers often parallel a manager’s specific experience and expertise, providing direct exposure in areas outside a family’s traditional skill set and business networks.

Different Generational Factors

Many direct investors got their start as entrepreneurs and grew into experienced business owners. They often leverage the skills honed from growing and running their personal businesses into being active, effective direct investors. However, this can make business and wealth succession planning challenging if the inheriting generation of family members does not share the same interest or abilities as the controlling generation. By contrast, fund investments are more institutional and transactional by nature, and do not require family members to preside over them in the same way. They can be easier to leave to beneficiaries and are suited to long-term investors focused on building a family legacy. PI fund opportunities can also provide a means for working with innovative investment ideas—from artificial intelligence to life sciences and music royalties. This can be a way of further engaging families with members across multiple generations and areas of interest.

Key Operational Differences

Direct investing and private fund investing can both be complex—but in different ways. It can be easy for families to underestimate the work involved with holding a directs portfolio. Direct investments sometimes require investors to sit on a board, provide operating advice, or may require extensive “in-house” capabilities to be dedicated to making an operation successful. Generally speaking, the more challenging the market environment and/or business conditions, the greater the time commitment. While fund investments require investment operational support, such as negotiating and executing LP agreements and managing capital calls and distributions, the operational burden they put on investors tends to be more consistent and—more often than not—significantly lighter.

Potential Challenges of Private Fund Investments

Skill Set Requirements

Whereas direct investments are typically more “hands-on,” a different kind of expertise is usually required to be successful in PI funds. The development and execution of fund strategies demands strategic insight, comprehensive due diligence on fund managers and underlying assets, careful risk management through diversification and hedging, and a deep understanding of fund structures and performance metrics. In many cases, industry knowledge and negotiation experience can give families an edge. To remain aligned with their broader investment goals, families should look for experienced investment managers in building a private fund portfolio.

Important Risk Variables

Blind pool risk is a principal factor pertaining to private funds. Families considering fund investments should remember that they do not have control over how the fund allocates capital. As a result, it is important to recognize that fund investments also often come with a high degree of illiquidity risk.

Fee Considerations

Private fund investors pay higher fees relative to other strategies. Historical returns should be considered when determining how they fit into a family’s broader portfolio, keeping in mind that top-tier PI fund performance may result in additional fees over the long term.

The Family Advantage

In our experience, families of wealth are often viewed as preferred strategic LPs by fund managers. While many PI fund managers can be hard to access, families have certain competitive advantages such as bringing a variety of operating backgrounds that are viewed favorably by fund managers. In addition, some managers appreciate that families can have less complex or formalized governance structures relative to institutional investors, helping with faster decision making through more immediate access to the decision maker(s). Many GPs also appreciate and identify with families who have an entrepreneurial background, allowing them to speak the same language of business ownership and development.

New Horizons

Incorporating a private fund portfolio alongside direct investments presents family investors with a strategic opportunity to augment their private market allocations, enhancing the potential for higher returns and greater diversification. However, skilled implementation is key, given the significant variance in returns within the private funds industry, coupled with its inherent illiquidity and other associated risks. To navigate these complexities, families should align their PI funds approach with their long-term financial objectives and desired level of risk tolerance. This alignment, combined with rigorous due diligence in manager selection, can greatly influence the outcome of their investments. Furthermore, disciplined management of the PI fund program—emphasizing vintage year diversification, maintaining adequate liquidity, and robust risk management—is crucial. By adhering to these principles, families can help create a resilient and high-performing PI fund portfolio that complements their direct holdings and successfully broadens their investment horizons.

Footnotes

1. While there is no definitive asset size at which institutional investment practices are appropriate for individual investors and families, specific portfolio and investment strategies are most effective at investable asset levels above $100 million. For a point of reference, Cambridge Associates’ average private client portfolio size is $350 million. This figure comprises the assets under advisement for private clients worldwide that use the firm for portfolio advice or management and receive performance reporting from Cambridge Associates.

The post Unlocking New Opportunities for Family Investors Through Private Funds appeared first on Cambridge Associates.

Footnotes

1. While there is no definitive asset size at which institutional investment practices are appropriate for individual investors and families, specific portfolio and investment strategies are most effective at investable asset levels above $100 million. For a point of reference, Cambridge Associates’ average private client portfolio size is $350 million. This figure comprises the assets under advisement for private clients worldwide that use the firm for portfolio advice or management and receive performance reporting from Cambridge Associates.

The post Video: Beyond Direct Investing: Unlocking Potential with Private Funds appeared first on Cambridge Associates.

Building an optimized investment infrastructure begins with clearly defined goals and identifying who, both inside and outside the family, will play a role in the wealth management process. Some families choose to build a family office to oversee some, or all of the functions related to managing their wealth in-house. However, for many families, the best approach is to build a team of advisors who are experts in their fields and who can work together to meet the family’s investment needs. This paper serves as a guide for families who have decided to outsource the investment function of their portfolio by partnering with an investment advisor. Its aim is to help families understand the different structural components to consider as they work to create an institutional-caliber portfolio (Figure 1). These structural components include investment management, banking, lifestyle services, legal representation, tax accounting/reporting, and philanthropy.

But First, a Word on Governance and Controls

For a family who has experienced a liquidity event, governance may not be top of mind. However, reflecting on how investment decisions will be made can often provide valuable direction on what type of partners they need. An honest assessment of a family’s desire to be involved in day-to-day investment decisions, oversight, and implementation—and their experience in making such decisions—will guide families to solutions that make the most sense for them. In some families, a primary wealth owner may prefer to make and approve all investment decisions, while in others a delegate or investment committee may be preferable. Considering these complex foundational questions up front can help determine optimal partners.

Investment Management

Working with an Advisor

Investment advisors provide a range of services to help manage a family’s wealth. First, they help the family create an investment strategy that aligns with their financial goals and risk tolerance. This includes due diligence, strategic asset allocation, risk management, investment selection, and regular monitoring of investments. Investment advisors can also provide investment education and retirement planning, estate planning, and tax planning. The role that an investment advisor takes on within an investment infrastructure differs from family to family. For this reason, they often operate in close coordination with lawyers, accountants, and tax specialists to ensure a comprehensive approach to wealth management.

Fiduciary Versus Advisory

When selecting an investment advisor, families should first consider the difference between a fiduciary and advisory relationship (Figure 2). They should consider a fiduciary relationship if they seek a partner who is legally bound to act in their best interests, especially if they prefer not to be deeply involved in day-to-day investment decisions. On the other hand, an advisory relationship might be suitable for families who desire more control over their investment choices and are comfortable with a more collaborative approach.

Portfolio Administration

Handling day-to-day portfolio operations is no small task. Families should note that the amount of time required to source and evaluate investments often goes well beyond what an individual alone can handle, even if they have a strong investment background. Meeting a portfolio’s oversight requirements also involves significant work. An outside investment manager can help family investors sort through the universe of available funds and strategies to identify which investments may best suit their goals. Whether a family creates a single, “one-stop shop” office to support its needs or elects to build a broader team of experts, a strong team is needed to oversee the execution of the playbook. From there, the focus should be on working with reputable and experienced service providers with strong references and a track record of success.

The work of portfolio administration also includes placing and signing off on trades, completing subscription documents, paying capital calls, cash monitoring, approving consent documents, and tracking performance. Cash management—for example, uncovering opportunities to achieve better cash yields than a custodian bank might be offering—is another key administrative task. Considerable work with selected banks is required to set up accounts and services, which we discuss in more detail below.

Many wealth owners try in earnest to take on all this work themselves, but find it becomes too challenging to manage in conjunction with other day-to-day obligations. In most cases, families should have someone readily available to undertake these responsibilities. Some investment advisors, including Cambridge Associates, can manage operational activities for clients—in either a fiduciary or advisory capacity. Alternatively, families who have opted to build a family office often handle portfolio operations with an in-house team.

Banking

Another key infrastructure choice that families need to make involves selecting a bank and the type of investment account they will use to operate and oversee their portfolio. There are two main options to choose from: a brokerage or custodian account (Figure 3).

A brokerage account is typically lower cost, as assets are held in a large general account on behalf of families. Because securities in a brokerage account are tied to a broader pool of assets, they may become encumbered or put in jeopardy in the event of a bank failure. By contrast, a custodian account is considered a more secure method of holding assets, with all securities held in the name of the account holder. Custodian accounts allow for assets to remain freely transferable providing an additional layer of capital protection in the event a bank or broker comes under financial pressure. For these reasons, custodial accounts are often referred to as “safekeeping” accounts. The landscape of brokerage account providers is fairly broad. However, when it comes to custodians, choices are more limited. When deciding between brokerage and custodial platforms, families should also consider the related costs. As service utility varies by preference and goals, families should know what they are signing up for (Figure 4).

Large custodians target families with assets of $200 million or more. These banks generally have better online portals, more service options, investment capabilities, and superior customer service teams. However, they also have revenue targets to consider when taking on new business, so they prefer larger clients and typically charge around 5 basis points (bps) on market value. Mid-size custodians generally charge a higher fee of around 10 bps, but don’t have defined revenue targets by relationship. In some cases, these banks may want to maintain an existing relationship with the family if a third-party manager is brought in. Alternatively, families with smaller mandates can seek out smaller custodial account providers, which offer no-frills services with fees starting at around $12,000. Figure 5 approximates what percent of assets are custodied once a portfolio is built out and fully allocated to its asset class targets.

After electing whether to use a brokerage or custodian account, account-specific add-on services can be determined. If a custodian relationship is selected, families can opt to add accounting services, including alternative asset pricing, so they have an official book of record. This service is useful for tax purposes, as transaction records and tax document collection can be shared with the tax provider.

Performance reporting is another add-on service that many families use to compare data against that of investment service providers. However, if a family’s investment consultant provides performance reporting, they will want to confirm whether two sources of performance data are useful to them or if this is an unnecessary cost. Some custodians offer nominee services to investors, whereby assets are purchased in the name of the bank. This is done for specific reasons, such as maintaining privacy of holdings and managing administrative complexities between clients and their banks. As families determine what kind of accounts they need, they should consult their existing tax service providers to be sure they are meeting all the bank’s documentation and regulatory requirements. An investment manager can next review the final account structure and domicile information and help recommended which investment vehicles may be best suited.

Beyond selecting where assets will be housed, families often need to negotiate terms related to borrowing and lending. For example, they may have an interest in taking a line of credit against their assets or becoming involved in private lending. In such cases, it’s important to consider both the existing banking relationship and the service offerings of other banks to determine an optimal approach.

Lifestyle Services

Services such as property management, bill pay, and support personnel can serve as additional components of an investment infrastructure that are not related to the portfolio. In many cases, support personnel include individuals who are responsible for cash and balance sheet management and tax coordination. The time and convenience provided by such services can allow family members to focus on other priorities such as business ventures and philanthropic work. Other benefits of lifestyle services include additional risk management and enhanced privacy. Finding the right service level starts by defining the scope and objective of the work, be it office staffing, property management, or household and travel administration. It is important to partner with service providers that align with the family’s specific preferences.

Legal Representation and Structuring

In addition to choosing an investment account type or entity, families need to consider their legal representation and structuring needs. Investors need legal support to determine optimal investment structuring strategies and to review investment agreements as new ideas are evaluated. Asset protection is another key component of legal representation—including the use of trusts and limited liability entities. Families should work with legal professionals who have expertise in wealth management and understand their unique needs.

Likewise, determining a clear legal structure is essential for ensuring a smooth transfer of wealth to future generations. A comprehensive succession plan that addresses issues, such as leadership transition, governance structures, and other family dynamics, will help ensure continuity of the investment strategy and an enduring focus on the family’s key values. For these reasons, a family’s legal representation should also be well-versed in wills, trusts, power of attorney, and healthcare directives.

Tax Accounting and Reporting

Tax accounting and reporting is a crucial component of a family’s investment operations. Beyond ensuring compliance with tax laws and regulations—including income reporting, deductions, and capital gains rules—effective tax accounting can also help maximize an investor’s tax efficiency and preserve wealth. Tax laws and regulations are complex and change frequently. Tax advisors who specialize in working with family investors can help with meeting requirements and identify tax planning opportunities. They can also assist investment transaction record keeping, make it easier to prepare tax returns, and respond to any tax inquiries. In some cases, investment managers can work with custodian banks to help streamline the flow of tax documents to maximize efficiency.

Philanthropy

Many families choose to set up a family foundation as part of their wealth planning. This type of capital pool requires a distinct kind of portfolio management, one that adheres to a unique set of spending requirements and liability needs. It can be beneficial to work with a partner that has experience in managing the fund disbursement process and tracking ongoing commitments. Families can also work with a philanthropy advisor to help them define and implement their giving strategy. Philanthropy advisors specialize in helping families clarify their values, mission, and priorities. Having a well-defined philanthropic plan in place can give families greater confidence in their giving strategy.

Complexity Considerations

For families of significant wealth, complexity is a natural byproduct of a well-managed portfolio. Generally speaking, the infrastructure needed to properly support the daily, weekly, monthly, and annual operations of an institutional-caliber portfolio will parallel the portfolio’s size and scale. A relatively straightforward investment structure with few family partnerships can allow for easier implementation and support. By contrast, more complex investment structures—such as unique pooling vehicles to support the needs of many beneficiaries—require additional flexibility. These structures also usually require enhanced tax management and accounting services. Families should conduct a thorough assessment of their internal resources, including time, expertise, and willingness to engage in investment management. If the complexity outweighs the family’s capacity for effective management, simplifying the investment structure or seeking external expertise may be prudent. On balance, an investment framework’s multidimensionality should help—not hinder—the work of serving the family’s long-term financial goals.

Building Toward Success

If or when a family’s wealth picture changes, it may be time to take a step back and determine the right partners and processes for moving ahead. Building the right investment infrastructure will play a crucial role in helping to preserve and maintain wealth over the long term. Families should take care not to underestimate the amount of work that effective investment management and wealth governance involves. Identifying their unique areas of expertise will help to clarify the areas where collaboration and partnership can be best used. In all instances, costs should be commensurate to the value delivered.

As families navigate the complexities of wealth management, it is crucial to remain proactive in building and adjusting their investment infrastructure. We encourage families to regularly review their investment goals, governance structures, and service provider relationships to ensure they align with their evolving needs. Ultimately, family investors should feel safe in the knowledge that they are operating an institutional-caliber portfolio—confident that their capital is not only protected from undue risk but being put to work in the service of their unique ambitions and values.

Footnotes

1. While there is no definitive asset size at which institutional investment practices are appropriate for individual investors and families, specific portfolio and investment strategies are most effective at investable asset levels above $100 million. For a point of reference, Cambridge Associates’ average private client portfolio size is $350 million. This figure comprises the assets under advisement for private clients worldwide that use the firm for portfolio advice or management and receive performance reporting from Cambridge Associates.

The post Optimizing Wealth Infrastructure for Families appeared first on Cambridge Associates.

What Is Private Credit?

Private credit investments are non-publicly traded investments provided by non-bank entities that fund private businesses. These investments encompass a wide range of strategies, including senior debt, subordinated capital, credit opportunities, distressed credit, and specialty finance, each with distinct features. At a high level, private credit consists of two distinct categories—lending and opportunistic (Figure 1).

Private credit strategies offer higher yields than traditional fixed income, with low correlations to both liquid corporate/municipal bonds and equity markets. In addition, private credit involves bespoke terms and structures that can offer ongoing cash yield and charges fees on invested rather than committed capital. Both elements help to mitigate a portfolio’s private investment J-curve impact. ²

Lending Strategies

Lending strategies offer money to borrowers for periods ranging from short to medium term, usually between three and five years. These loans often come with variable interest rates that can change over time. These strategies can be particularly appealing when the loans are for shorter periods and the lender has a priority claim on the borrower’s assets in case of default. Furthermore, many lending funds have provided attractive returns that are not closely linked to changes in interest rates—through self-liquidating investments that are designed to pay themselves off within a three-year period. In 2022, for example, these strategies generated strong positive returns, while liquid high-quality bonds (e.g., US government, corporate, municipal, mortgage) were all down more than 10%.

Private lending strategies feature privately negotiated, senior structured debt and traditionally generate a 8%–10% net unlevered returns per annum. The deals usually include contractual payments, high-quality collateral, enforceable covenants, and bankruptcy remote structures to control and disburse cash from interest payments and fees. Based on our experience, lending strategy managers can currently achieve 10%–12% net ³ unlevered returns, benefiting from elevated base rates and reduced competition from traditional bank institutions.

Opportunistic Strategies

Opportunistic credit investments employ higher return and higher risk strategies by providing companies with a broader set of capital solutions relative to lending-only strategies. These funds fall between each end of the risk spectrum—from traditional direct lending to control-oriented distressed. Credit opportunity and specialty finance funds invest in instruments such as secondary market bonds and loans, directly originated loans with warrants, and structured equity solutions. These funds typically target net returns in the 12%–15% per annum range. We believe they have the potential to deliver even higher returns during periods of market stress when traditional capital sources are less widely available. For example, many opportunistic credit funds preserved capital with positive returns from interest and fees in 2022, offsetting modest marked-to-market losses amid broader interest rate uncertainty.

Combining Lending and Opportunistic

Investors can also create a blend of lending and opportunistic private credit approaches with the potential to target net returns more than 12% per annum. In many cases, we believe a blended private credit program can provide investor a balanced source of returns, with current income received sooner and the opportunity for higher returning assets over medium- to long-duration periods. In these balanced programs, the distributions and return of capital from the lending strategies can also be used to fund capital calls for longer lock-up, opportunistic credit funds with longer investment periods and fund life.

Current Opportunities for Private Investors

The current investment environment presents a unique set of private credit opportunities for families and private wealth investors. Traditional banks have become more cautious about lending due to mixed economic forecasts and interest rate uncertainty. This caution is partly because some borrowers, especially in commercial real estate and corporate debt, are facing difficulties due to higher interest costs, particularly with floating rate loans. Some of these borrowers are finding it harder to refinance their debts at reasonable costs and struggling to sell off loans without incurring significant losses. Consequently, banks are reserving more funds to cover potential losses and are being very careful about issuing new loans, leading to reduced loan activity and less money available for borrowers. As a result, private credit funds have emerged as a critical source of financing, especially for mid-sized companies that are often overlooked by larger financial institutions. These funds are stepping in to fill the gap, providing much-needed capital in a tighter lending environment.

Second, in a market characterized by volatility and ambiguity, private credit offers a relatively stable investment option due to its secured nature and structured returns. Engaging in direct lending opportunities can allow for more customized deal structuring, providing both protection and flexibility. This can include negotiating stronger covenant protections or opting for asset-based lending to further secure investments. Investors may also want to explore opportunities in distressed debt markets. Economic downturns and market dislocations can create attractive entry points for investors with the expertise to navigate these complex situations, potentially leading to outsized returns as markets recover.

Last, it’s crucial for private investors and wealthy families to partner with experienced fund managers who not only have a proven track record in private credit but also possess deep sectoral expertise and the ability to conduct thorough due diligence. We believe partnering with an investment advisor with deep private credit research capability is instrumental in uncovering hidden gems and avoiding pitfalls in this nuanced space.

Understanding Key Risks

While private credit offers attractive benefits, it is important to be aware of its inherent risks. These risks include: illiquidity, constrained upside potential compared to private equity, manager selection, and tax inefficiency.

Depending on the strategy, private credit investments can involve capital lock-ups of three to ten years. Although slightly more liquid than other private investments, private credit investors need to be prepared to commit for the long term. What’s more, unlike the high-growth potential of private equity, private credit strategies often come with fixed returns—or return levels in which the upside is capped. While this can result in more stable returns with lower risk relative to other private investments, it represents a ceiling on how much a strategy can earn.

As with all private market investments, performance dispersion in private credit is wide (Figure 2). In some cases, steady returns might mask underlying challenges, including borrowers that have limited credit histories. We believe success in private credit investing comes from partnering with managers that have a proven track record, expertise in assessing credit risk, and a history of recovering investments. Selecting top-tier managers is essential for tapping into the full potential of private credit and earning an illiquidity premium.

Lastly, tax inefficiency poses a notable challenge for private and family investors in private credit. This issue arises because the interest income generated from private credit investments is often taxed at higher ordinary income rates, rather than the lower capital gains rates applicable to some other types of investments. This can significantly reduce the net returns that investors receive, especially for those in higher tax brackets. The complexity of the investment structures within private credit can also further complicate tax matters, requiring careful planning and management to meet the tax obligation. Understanding and navigating these tax implications can help maximize the efficiency and overall returns of private credit investments (see “Managing Tax Implications”).

Implementation: Things to Consider

To take advantage of attractive yield opportunities available in private credit, family and private investors should carefully consider several key implementation factors (Figure 3). First, liquidity needs are an important consideration, given the illiquid nature of many private credit investments, which may not be easily sold or converted to cash. The longer commitments required of some private credit investments make them more suitable to investors with a longer-term outlook that have a clearly defined target yield. Determining this target requires a close assessment of risk tolerance, as higher yields often come with higher risks.

Diversification is another key aspect of private credit implementation. Investors should consider diversifying their private credit portfolios across sectors that demonstrate resilience and growth potential, such as technology, healthcare, and renewable energy. A diversified approach can help spread risk across various sectors and credit qualities while capitalizing on emerging trends.

Robust due diligence is also imperative. Understanding the borrower’s ability to meet its debt obligations is paramount to mitigating default risks. Market conditions continually influence the availability of opportunities and the risk/return profile of private credit investments. Staying mindful of regulatory and tax policy changes is also important, as these can impact investment structures, compliance requirements, and overall returns.

When implementing private credit strategies, private investors and wealthy families often have a flexibility advantage. They can allocate more nimbly than other large investors, such as pensions or endowments, and are thus well positioned to take advantage of the current robust opportunity set. Flexible asset class definitions and target ranges can likewise allow them to allocate more opportunistically. For instance, credit opportunity funds that target higher returning assets can be sourced from traditional private investment allocations. But private investors and wealthy families can also consider a wider range of capital sources. They can, for example, position lending strategies within a portfolio as part of a fixed income or diversifier allocation, helping to smooth returns and provide protection in adverse market environments. For investors building new private growth sleeves, private credit can provide another option for generating risk-managed alpha.

Giving Private Credit its Due

Private credit investments have experienced a rapid evolution over the past decade. In fact, the private credit landscape has changed so much that investors that last explored it ten or more years ago may not recognize it today. Market conditions have helped to shape what may be a particularly auspicious cycle for the asset class. Higher interest rates and changing credit market dynamics have created attractive opportunities for private investors and wealthy families—but proper due diligence and implementation is essential. Allocations to private credit can be additive to overall portfolio positioning, serving as a complimentary source of growth and income generation along with strong downside protection. Ultimately, a customized approach to private credit that accounts for liquidity and tax challenges may be the best path for investors seeking a consistent income source that is less correlated to traditional fixed income and equity markets.

Footnotes

1. While there is no definitive asset size at which institutional investment practices are appropriate for individual investors and families, specific portfolio and investment strategies are most effective at investable asset levels above $100 million. For a point of reference, Cambridge Associates’ average private client portfolio size is $350 million. This figure comprises the assets under advisement for private clients worldwide that use the firm for portfolio advice or management and receive performance reporting from Cambridge Associates.
2. A J-curve is an early period characterized by negative returns and cash flows, as investments are initially made and develop over time before they are in a position to be sold.
3. All financial investments involve risk. Depending on the type of investment, losses can be unlimited. Past performance is not indicative of future returns.

The post The Private Credit Playbook: Understanding Opportunities for Family Investors appeared first on Cambridge Associates.

Adam Barber, Senior Investment Director in the Private Client Practice, explains how—and why—a portfolio stress test should be customized to your family’s unique situation.

View the video below. Learn more about Cambridge Associates here.

Footnotes

1. While there is no definitive asset size at which institutional investment practices are appropriate for individual investors and families, specific portfolio and investment strategies are most effective at investable asset levels above $100 million. For a point of reference, Cambridge Associates’ average private client portfolio size is $350 million. This figure comprises the assets under advisement for private clients worldwide that use the firm for portfolio advice or management and receive performance reporting from Cambridge Associates.
2. A J-curve is an early period characterized by negative returns and cash flows, as investments are initially made and develop over time before they are in a position to be sold.
3. All financial investments involve risk. Depending on the type of investment, losses can be unlimited. Past performance is not indicative of future returns.

The post Video: Navigating Liquidity Challenges: The Importance of Portfolio Stress Testing appeared first on Cambridge Associates.