By Chris Boehm and Bill Rudnick, Executive Managing Directors and Co-Founders, Peakline Partners
Family offices play an ever-increasing role in the alternative investment landscape. As Forbes has noted, “Family offices have long been a quiet force in the world of active management, but in recent years, they have ascended to the forefront of financial influence.[1]
Some family offices manage their investments entirely in-house, relying solely on family members. Others have fully developed internal investment teams. Many engage third-party advisors for expertise, while some combine two or all three approaches in a hybrid model. Regardless of the structure, one thing remains constant: Family members are, indeed must be, actively involved in the investment process.
Drawing on decades of experience as investors and advisors to family offices, we’ve developed a set of practical recommendations to help families make better investment decisions today — and position themselves for success tomorrow. These insights fall into two key areas: adopting a holistic portfolio approach; and establishing effective investment committee practices.
A Holistic Portfolio Approach
One of the key principles of investing is to evaluate opportunities in the context of the entire portfolio. This approach ensures that each investment contributes to the overall goals and risk profile of the portfolio, it makes clear that there is an opportunity cost for any particular investment, and it helps mitigate, “the fear of missing out.” Here are some strategies to achieve this:
- Define Your Investment Goals: Begin by asking a foundational question: what is the primary purpose of the portfolio? Is it to support the lifestyle of current family members? To fund future needs, such as education for the next generation? To preserve capital? To enable charitable giving? Etc. Once these goals are clearly defined, the next step is to determine the appropriate mix of investment types that will best support them. We like to think about organizing a portfolio into a series of “buckets,” each aligned with a specific objective. With those buckets in place, families can more thoughtfully evaluate which investments fit best within each category. This is where opportunity cost becomes a critical discipline. For example, if one bucket is allocated to venture capital, each investment added to that bucket means there may not be room for another, reinforcing the need for thoughtful, intentional selection.
- Focus on Diversification and Risk: Regardless of the family’s goals, diversification remains essential. Spreading investments across asset classes, sectors, and geographies helps reduce risk and improve the potential for long-term returns. A well-balanced portfolio might include a thoughtful mix of equities, fixed income, real estate, private equity, and other alternative assets. Equally important is understanding the specific risks each investment carries, and how those risks interact at the portfolio level. This is where correlation analysis becomes critical. A portfolio may appear diversified on the surface, but if many holdings are vulnerable to the same underlying risk, such energy shock may require a closer examination and rebalancing.
- Recognize the Family’s Strengths: An important, and often underutilized, advantage lies in the family’s unique strengths and edge. If the family’s wealth originated in a particular industry or investment category, the family may possess valuable insights, relationships, and access that www.peakline.com others do not. This familiarity can provide a meaningful advantage, not only in identifying promising opportunities, but also in knowing when to pass on investments that may appear attractive on the surface but don’t align with the family’s expertise.
- Prioritize Liquidity Considerations: It is critical to ensure that the portfolio has sufficient liquidity to meet the family’s needs. This is done by first by planning for potential cash flow requirements and then including an appropriate mix of liquid and illiquid assets.
Instilling Investment Committee Best Practices
As previously noted, members of the family need to be engaged with the investment process, usually by membership on the family office’s investment committee (IC). Effective ICs are critical for making informed and unbiased decisions. The following represent some best practices for fostering strong IC governance:
- Schedule Structured Meetings: Regular, well-structured meetings are essential for effective decision-making. Agendas should be clear and focused, with time allocated for reviewing performance, discussing new opportunities, and addressing any concerns, including investments that aren’t performing as expected.
- Outline Appropriate Delegation: Establishing clear boundaries around what the IC should and should not handle is essential to running efficient, focused meetings. Not every decision needs to rise to the level of the full committee. For instance, once the IC agrees on an allocation to an S&P 500 index fund, the specific selection of which fund can typically be delegated. In contrast, decisions involving private equity allocations warrant direct involvement from the IC, given significant variation among private equity funds in terms of strategy, risk, and return potential. Prioritizing the IC’s time and attention in this way helps ensure thoughtful oversight where it matters most.
- Encourage Generational Participation: Involving multiple generations in the IC brings valuable diversity of thought and helps ensure continuity across time. Younger family members often contribute fresh perspectives and new ideas, while older generations provide the benefit of experience and long-term context. As one matriarch we work with regularly reminds the younger generations, who tend to defer to her judgment, “There will come a time when I’m no longer here. You need to be ready to lead.” This kind of intentional generational engagement helps build confidence, accountability, and a sense of shared responsibility for the family’s financial future.
- Assign a “Red Team” Role: Assigning someone the role of “red team” is crucial for challenging assumptions and identifying potential risks. This person should critically evaluate proposals, challenge assumptions, focus on downside risk, and generally provide an independent perspective to ensure thorough analysis. In the absence of this, group-think becomes a serious risk.
- Manage Egos: Keeping egos in check is vital for collaborative decision-making. Family offices should foster a culture of respect and open dialogue, where all members feel valued and heard. This can be achieved through clear communication, active listening, and a focus on collective goals; the red team process can help with this, because it is the job of at least one person to be contrarian. Everyone should be reminded that, whether they “win or lose” the argument over an investment, it won’t have too big an impact on the portfolio if there is appropriate diversification.
By adopting a holistic portfolio approach and maintaining good investment committee practices, family offices can make better investment decisions that align with their goals and risk tolerance. Setting goals, diversification and risk management, playing to the family’s strengths, and liquidity considerations are key components of a holistic portfolio strategy. Structured meetings, delegation, generational participation, a red team role, and ego management are essential for effective investment committee practices. Implementing these strategies can help family offices navigate the complexities of investment management, achieve long-term success, and ultimately strengthen the family itself.
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