The Rise of Alternatives: Unlocking Opportunities in Private Markets for Family Offices

There was a time, not so long ago, when a well-diversified public market portfolio was the very definition of prudent wealth management. It was elegant, liquid, and, for the most part, effective. That time has passed. Attempting to navigate today’s markets with that playbook alone is akin to bringing a beautifully crafted sailboat to a Formula 1 race: sure, you may look distinguished and admired for the craftsmanship and engineering, but you will not even make it to the tracks.

The confluence of persistent inflation, geopolitical fragmentation, and unstable correlations has rendered traditional portfolios insufficient. The old certainties, like the inverse relationship between government bonds and equities that anchored the 60/40 portfolio for decades, have fractured. In response, savvy family offices are undertaking the most significant strategic pivot in a generation: a structural and sustained rotation into private markets. This is not a dalliance with a fashionable trend; it is a foundational realignment in the pursuit of resilience and real returns.

The Structural Rotation into Illiquidity

The data confirms the scale of this shift. Alternatives now account for, on average, 42% of family office portfolios, with allocations to private equity now matching or even surpassing public equities in many cases. This is a deliberate reallocation of capital, driven by a clear-eyed assessment of the current landscape where public market volatility is high and genuine value is harder to find.

The primary motivation is twofold. First is the pursuit of a meaningful illiquidity premium: the potential for higher returns as concrete compensation for tying up capital in less-traded assets. The second, and arguably more critical driver, is the search for genuine diversification. As traditional "safe" assets have proven unreliable in offsetting risk during equity downturns, the uncorrelated return streams offered by private assets have become essential tools for building a robust, all-weather portfolio. This strategic shift acknowledges a new reality: the path to long-term wealth preservation is no longer paved exclusively with public securities. It requires a journey into less liquid, more complex territory where true alpha can be generated.

The New Pillars of the Alternative Portfolio

While private equity has long been the cornerstone of alternative allocations, the modern family office is building a more diversified structure supported by several key pillars. The focus has broadened to asset classes strategically aligned to mitigate today’s primary risks of inflation and geopolitical uncertainty.

  • Private Equity: The bedrock of most alternative portfolios, private equity remains a high-conviction allocation. Its appeal has been sharpened by the trend of high-quality, growth-oriented companies—like a late-stage SaaS or biotech firm—staying private for longer. This creates a deep pool of opportunity for the patient, long-term capital that family offices are uniquely positioned to provide, allowing them to capture a company’s most significant value-creation phase before it ever reaches the public markets.

  • Private Credit: This asset class has rapidly become the favoured destination for new capital. Its appeal is multifaceted: it offers the potential for attractive, equity-like returns but with the downside protection of a senior, secured position in the capital structure. This seniority, often combined with strict covenants and claims on specific assets, provides a crucial buffer in uncertain times. Furthermore, many private credit instruments have floating-rate structures, providing an effective, built-in hedge against inflation. In a world of rising rates and economic uncertainty, the case for private credit is compelling.

  • Infrastructure: Once considered a niche asset, infrastructure is experiencing a surge in momentum. Its unique characteristics—stable, long-term cash flows, inflation-linked revenues, and inherent resilience to economic cycles—make it a powerful portfolio diversifier. Investment is being fuelled by immense secular tailwinds: the global energy transition (requiring capital for wind farms, solar fields, and battery storage), the explosion in demand for digital infrastructure (data centres, fibre optic networks, and cell towers), and the geopolitical push for supply chain localisation (specialised manufacturing plants and modern logistics hubs). These are not cyclical trends; they are multi-decade transformations requiring trillions of dollars in private capital.

The Direct Investing Dilemma

The allure of direct investing is powerful. The prospect of greater control, enhanced transparency, and avoiding fund management fees has led a significant majority of family offices to make direct investments in private companies. The reality, however, has proven to be a sobering lesson for many.

The operational demands of sourcing, vetting, and managing direct deals are immense and frequently underestimated. Establishing proprietary deal flow, conducting deep commercial and financial due diligence, and actively managing a portfolio company post-acquisition requires a dedicated team with institutional-grade expertise. This has created a critical capabilities gap: a great many offices pursuing direct deals lack this internal infrastructure. The result is often a portfolio of underperforming investments, a high opportunity cost in terms of time and internal resources, and even reputational risk for the family.

This has forced a strategic reassessment across the industry. A small elite of the largest family offices are successfully building what amount to in-house private equity firms. The rest are wisely concluding that success requires more than ambition and are pivoting to more realistic, partnership-centric models. The central question for any family office is not whether to invest directly, but whether it has the governance to resources to do so professionally. Without them, it is a dangerous journey with numerous pitfalls.

The Spectrum of Access

For the majority of family offices, effective access to private markets is not an "either/or" proposition but a blended strategy. The decision of how to access the asset class has become as important as the allocation itself.

  • Fund Investing: Committing capital to top-tier funds remains a foundational strategy. It provides instant diversification and access to the sourcing and due diligence capabilities of established General Partners, significantly reducing the internal burden. Given the wide dispersion of returns between top and bottom-quartile managers, rigorous and continuous manager selection is the key to success.

  • Co-Investing: Offering a compelling middle ground, co-investing is rapidly gaining in popularity. This "smart partnership" model allows a family office to invest directly into a company alongside a trusted GP, providing deal-level discretion and reduced fees. It is an efficient way to enhance returns and build a more concentrated portfolio, while also allowing the internal team to gain valuable experience by observing the GP's process up close.

  • Niche Strategies: Herein lies the family office’s unique superpower: patient capital. Unbound by the fixed fund cycles that constrain traditional private equity, family offices can pursue long-term strategies that others cannot. This includes "buy-and-build" plays in fragmented industries, investing in stable, cash-generating "sunset" industries, or providing flexible capital in special situations that fall outside the rigid mandates of most funds. This long-term horizon, a core element of crafting a multi-generational legacy plan, is a distinct competitive advantage.

Conclusion: Charting the Course

The rotation into private markets is a rational and necessary response to a changed world. It offers a path to the real returns and genuine diversification that are essential for preserving wealth across generations.

However, this is not a simple journey. Success requires more than just capital; it demands a clear-eyed strategy, a brutally honest assessment of internal capabilities, and a sophisticated partnership mindset. The most resilient family offices of the next decade will be those that navigate this complex terrain with discipline and foresight. They will understand which pillars of the alternative portfolio to build upon, when to partner, and when to lead in this ongoing professionalization of the family enterprise.

Location: Vancouver, BC, Canada

Popular posts from this blog

Forecasting for Small Businesses: Techniques, Tools, and Best Practices

Small and medium- sized businesses ( SMBs) thrive on careful planning and agility. One essential tool in the SMB toolkit is financial forecasting:  the process of predicting future business metrics ( like sales, expenses, or cash flow) based on past data and informed assumptions. Accurate forecasting isn’t just number- crunching; it’s about empowering better planning, budgeting, and decision- making. In this guide, we’ll explore why forecasting matters for SMBs, the common methods and data you’ll need, tools that make forecasting easier, practical steps to get started, best practices to follow, pitfalls to avoid, and how to integrate forecasting into your broader business strategy .
Read more

Budgeting Frameworks for Small Businesses: Aligning Spend with Growth Goals

Small businesses often live or die by their financial decisions. In fact, roughly half of new small businesses fail within their first five years;  a sobering statistic frequently linked to a lack of strategic financial planning . One major culprit is the absence of a structured budget; many entrepreneurs operate “ in the moment,” overlooking the importance of planning ahead . A well- structured budget isn’t just about tracking expenses; it’s a roadmap that aligns your spending with your business strategy and growth goals .
Read more

Small Business Compliance: From Burden to Strategic Advantage

You're juggling 17 different tasks, your coffee's gone cold (again), and somewhere between customer calls and inventory management, you receive a notice about new data privacy regulations. Your first instinct? Probably to file it under "things that make me want to hide under my desk."  Perfectly understandable. Most small business owners regard regulatory compliance with the same enthusiasm they'd reserve for a root canal. It's expensive, it's complicated, and frankly, it feels like bureaucratic sadism designed by people who've never had to make payroll on a Friday afternoon.
Read more

Brand Development and Marketing Excellence For Small Businesses

You've spent months perfecting your product, assembled a capable team, and launched with the confidence that comes from knowing you've created something genuinely valuable. Yet six months later, you're staring at disappointing sales figures and wondering whether your marketing budget has simply evaporated into the digital ether. If this scenario feels uncomfortably familiar, you're not alone—and more importantly, you're not without recourse.
Read more

Creating a Winning Strategic Roadmap for Your Business

Author's Note: For a less boring experience, try the new Strategic Roadmapping article. Every small business needs a clear strategic roadmap to navigate a competitive and ever-changing market. Simply “waiting and seeing” isn’t viable – conditions are always in flux, and customer needs constantly evolve. Without a plan, a company can wander aimlessly with no priorities, leaving employees confused about their purpose. A well-crafted strategic plan acts as a roadmap for your business to reach its goals , allowing you to gauge performance and adjust course over time. 
Read more