RT Journal Article
SR Electronic
T1 The Influence of a Family Business
on Portfolio Management: An Asset-Liability Management Approach
JF The Journal of Wealth Management
FD Institutional Investor Journals
SP 14
OP 30
DO 10.3905/jwm.2014.17.1.014
VO 17
IS 1
A1 Stephen M. Horan
A1 Robert R. Johnson
YR 2014
UL https://pm-research.com/content/17/1/14.abstract
AB Human capital represents a large proportion of the assets on almost all investors’ life balance sheets and varies considerably in magnitude and character, which we show profoundly influences optimal asset allocation of a family’s financial assets. Using an asset-liability management framework, we demonstrate through the example of an ultra-high net worth family with a large operating company that the magnitude of the family’s investment goals in relation to their assets is a critical determinant of risk tolerance. For investors with substantial discretionary wealth, changes in asset valuations and investment priorities imply very large changes in optimal asset allocation, which are sometimes counterintuitive and further amplified when an illiquid operating company represents the bulk of a family’s assets.TOPICS: Wealth management, portfolio construction, risk management