The decision in brief
Compare liquid market exposure with a modest illiquid sleeve.
What this reference is for
A transparent starting mix. The model is a small set of stated allocation weights, chosen to make a decision trade-off visible. It is not fitted to a historical return sample and does not identify a best allocation for an actual family.
The allocation separates public equities, bonds, cash and illiquid assets. Those categories are broad: the duration of a bond, the exposures inside a fund and the terms of a private investment can change the result substantially. Treat the categories as the start of a requirements discussion.
Read the allocation as a budget
The assumed cash weight is 10% and the assumed illiquid weight is 10%. An office would need to decide which spending and commitment assumptions justify those amounts. A percentage alone cannot establish a funding runway.
Illiquid assets are not a single risk factor. Different assets can have different valuation dates, lockups, distribution patterns and unfunded commitments. The reference does not assume that a valuation can be converted into cash on demand.
A common shock makes comparisons inspectable
The workbench applies the same hypothetical asset shocks to each reference. It multiplies each weight by the specified shock and sums the contributions. It then deducts one annual spending amount and a fee calculated from starting portfolio value.
This is a single-period accounting illustration. It excludes covariance estimation, return forecasts, investment income, tax, trading costs, leverage, derivatives and the sequence of cash flows. It should not be described as a forecast, backtest, risk-parity solution or probability of loss.
Questions before using a real model
Market exposure can dominate the spending plan.
Ask how the mandate defines liquidity, which assets are eligible, what is known about liabilities and which changes require committee approval. Confirm whether the family business and other outside exposures should change the budget for similar public-market risk. Record the assumptions and the action the illustration would inform.
Decision points
- Interpret allocation weights alongside the obligation schedule.
- Compare models under identical assumptions before changing inputs.
- Obtain suitable advice before translating an illustration into a portfolio action.
Sources and further reading
The linked sources provide conceptual background. The worked examples and planning assumptions on this page are this publication's own illustrations.