The Flawed Aspects of the Traditional Portfolio Structure of Family Offices

Here is an example of a traditional portfolio structure for family offices (Source: UBS).

The first major issue with this structure is that it mostly relies on a single strategy, often based on value investing models only. There is, most likely than not, no short exposure nor any exposure to models that can generate alpha in momentum driven conditions or profit from noisy conditions, which are prevalent in public financial markets.

The second issue is that it fails to include hedging instruments, mostly currency baskets that can reduce the volatility of the overall portfolio but also add significant alpha that is not correlated with the equity and bond components of the traditional portfolio.

The third issue is the home bias in both equities and bonds, whereas cross jurisdiction holdings are too few.

The fourth issue is the flawed aspect of the alternative holdings (the left side of the pie chart). Commodities holdings are insignificant (where is Gold ?!) - that is wrong. Moreover, we find that the private equity and direct investments holdings add unnecessary risks as a result of the absence of liquidity and mark-to-market in those markets.

The fifth issue is the infrequency of portfolio rebalancing.

The sixth issue is the the infrequency of profit taking, which we believe is extremely important to achieving outstanding risk-adjusted returns.

We could go on and on looking at additional flaws of this traditional structure.

At Wealth Strategic, we've launched the SMIF Program, the first of its kind in Canada to assist family offices and business corporations in structuring better risk-adjusted global macro portfolio, whether markets go up or down !

The SMIF Program has been created to help your office correct these structural flaws.

Let's talk !