Investing and allocating capital
How Should a Family Set a Benchmark for a Portfolio With Unusual Assets?
Short answer. Start with the family's objective, risk capacity, and liabilities, then choose measures that reflect the portfolio's actual assets and time horizon. Use relevant market indexes where they fit, but do not force unusual holdings into an unrelated benchmark. Track absolute results and costs. Include liquidity and risk alongside relative comparisons.
Set a benchmark for an unusual portfolio by starting with what the family needs the capital to do and what risks it can accept. A single market index may not represent a portfolio containing private businesses, real estate, credit, or other distinctive assets. Use benchmarks to support decisions and keep the investment objective clear.
Define the Objective and Risk First
Document the family's spending needs, investment horizon, liquidity requirements, and tolerance for losses. Then identify which holdings are expected to provide income, preserve capital, or support longer-term growth. A benchmark should help assess those roles. For a family with meaningful future obligations, liabilities and cash needs can matter as much as a public market comparison.
Agree in advance on the kind of loss or drawdown the family can withstand. If that discussion happens only after markets fall, the family may react by changing course at a difficult time. The portfolio model framework can help align allocation choices with the family's objectives and risk profile.
Use Comparisons That Fit the Holdings
Where a holding has a relevant market index or peer group, use it as one point of comparison. For unusual or private assets, identify the closest reasonable reference and explain its limitations. A private property or operating company may lack a comparable index that captures its debt, liquidity, operating risk, or ownership rights. In those cases, track the asset's own cash flows, valuation assumptions, and progress against the investment thesis.
For the overall portfolio, consider a blended reference that reflects its target allocation, alongside a measure of absolute results. Report results after fees, including liquidity measures. Also track risk. Families often care about whether capital is meeting their needs, not simply whether it is outperforming another asset-based index. The after-fee, tax, and inflation performance review can help widen the comparison beyond a headline return.
Keep the Benchmark Useful
Write down the benchmark, the reason it was selected, the review period, and the circumstances that would prompt a change. Avoid changing it just because a particular comparison looks unfavorable. If a holding's strategy or purpose changes, revisit whether the benchmark still describes what the family expects from it.
Review portfolio-level performance and the contribution of unusual assets. A benchmark cannot show every dimension of a private investment, so pair it with evidence about cash generation and valuation. Also review concentration and exit options. The strategy review process can help connect performance measurement to the original investment plan.
What they really focus their attention upon was how were they doing with their assets relative to another asset based index, a customized benchmark, if you will.
Sources: The Family Office Book, The Single Family Office. Informational only, not financial, legal or tax advice.