Market Insight by Fadi Barakat - Growing a family legacy – managing portfolios for family wealth

It could be argued that since the start of quantitative easing in 2008, most financial assets have been highly correlated. Equities and bonds have never moved so closely together and that’s mainly due to the substantial bond purchases by central banks. 

Debt monetisation and artificially low interest rates seemed sensible until inflation surged, forcing the hand of central banks. Consequently, markets suffered substantially this year and the 60 (fixed income)/40 (equities) traditional allocation strategy has demonstrated its limitations. We find ourselves wondering whether it is still suitable for preserving wealth. How do we manage portfolios for family legacy in today’s world? 

The new 60/40
There has been a shift in investor appetite for risk and asset selection following recent years of low yielding bond markets and inflation worries. In the hunt for returns, private markets have witnessed significant growth in debt and equity investments. Allocations to those asset classes has risen over the last decade. Sacrificing liquidity for higher returns, investing in private equity or private debt could enhance long-term performance for those unconstrained by short-term cash needs. Real assets and commodities are crucial hedges against inflation. On the other hand, during turbulent years, some hedge funds have shown resilience and  yielded significant returns. Lastly, digital assets have also come to have a place within asset allocation (AA), albeit a marginal share. The above makes up the “new 40”, whereas the “new 60” remains invested in traditional assets like bonds and equities split evenly, with developed markets taking most of the share. Breaking down the strategic asset allocation (SAA) portfolio would yield: 30% allocation to equities, circa 30% to fixed income and 10% to real estate. Allocation to hedge funds would be at 5%, with 20% in private debt and private equity, and gold & commodities at 5%.