Investing and allocating capital
How Can an Investment Plan Account for Assets the Family Cannot Easily Sell?
Short answer. Include hard-to-sell assets in the portfolio's total exposure, even when they sit outside a managed account. Estimate their likely liquidity, cash demands, and concentration effects, then plan liquid holdings around those constraints. Set a review process for valuations and exit assumptions, and avoid relying on uncertain sale proceeds to meet near-term needs.
Account for assets that are hard to sell by treating them as part of the family's actual portfolio, not as an exception outside the plan. Private businesses, real estate, and other illiquid holdings can dominate the family's economic exposure and affect its ability to fund spending or commitments. A plan built only around liquid accounts can give a false picture of risk and capacity.
Inventory the Assets and Their Constraints
For each illiquid holding, record its ownership, purpose, current valuation basis, expected cash flows, restrictions on sale, and any capital or operating demands. Note who controls a sale and whether other owners, lenders, or contractual terms affect the timing. Use ranges or scenarios where the value or sale date is uncertain instead of treating an estimate as guaranteed proceeds.
Group holdings by the risks they share. A family with substantial wealth tied to one operating business may also have private investments that depend on the same industry or economic conditions. Include those relationships in the exposure map. A specific portfolio model helps connect illiquid holdings with the family's other investments and cash requirements.
Build Liquidity Around What Cannot Be Sold
Estimate foreseeable spending, taxes, debt service, and investment commitments without assuming an illiquid asset can be sold on demand. Maintain a liquidity plan that considers when cash may be needed and which assets can reasonably provide it. The plan should include the possibility that a sale takes longer than expected or occurs at a lower value than the family had hoped.
Direct investments need a clear mandate and an exit plan, even if the family expects to hold them for a long time. In my experience, families benefit from knowing what would prompt a sale and who can approve one. The plan for assets that may take years to sell can help identify those constraints. A capital call and liquidity planner can help organize expected cash needs and commitments.
Review Assumptions and Concentration
Review illiquid holdings on a regular schedule, with attention to changes in operations, financing, valuation evidence, and sale prospects. Do not compare an infrequently valued private asset with a frequently priced public holding as if the difference in reported volatility proves the private asset is safer. Look at the underlying business or property risk and the family's ability to absorb a loss or delay.
Document any decision to retain, reduce, or add to an illiquid position and show how it affects the rest of the portfolio. The exposure limits for companies, sectors, and countries can support that review. Talk with your attorney or CPA when sale terms, entity structure, or tax consequences affect the plan.
I think the most important thing is for families to develop a very specific mandate for what they are looking for and why.
Sources: The Family Office Book, The Single Family Office. Informational only, not financial, legal or tax advice.