In this article, we talk to one of the senior figures at the $60 billion AuM investment house, who reveals how family offices are looking to diversify; the approach taken toward the dollar, and attitudes to "asset location."

As this publication noted in its recent overview of changing approaches to asset allocation, there is much focus on the presumed shifts in global trade, and not just because of US tariffs. 

Asset allocation is very much on people's minds. In this final quarter of the year, thoughts can often turn to how wealth managers and private banks deploy clients’ money; we have carried a raft of commentaries about the pros and cons of investing in the US, the impact of a devaluing dollar, shifts to emerging markets, the case for Japan, or India, and Europe. There is also a fair amount of rumination about whether the old “60/40” equity/bond balanced portfolio makes much sense when – as has happened in recent years – stocks and bonds move in lockstep. And nowadays we have the rise of private market investing and moves even in the mass-affluent/retail space to hold private market assets. We have also looked at the different ways wealth managers address risks and uncertainties, such as via using derivatives and hedge funds.

One firm that wields a large club in its views is Partners Capital, a global firm with offices in North America, Asia and Europe. We recently talked to Sud Murugesu, who is partner and head of the West Coast (US) business at the firm. Partners Capital has more than $60 billion in assets under management. 

In your view, over the next two to three years, how do you see concerns about the US dollar depreciating against other currencies and perhaps losing a bit of edge as a global reserve currency affecting asset allocation by US-based family offices, and why? If this process continues, what sort of steps do you expect asset allocators to take?
We don’t see a sudden dethroning of the dollar, but families are rightly planning for continued currency volatility. We view currency as a risk to be managed, and not a sustainable source of return. In the current environment, this leads to an overall more balanced currency mix, adjusting hedge ratios by region, and a focus on future currency liability matching. These steps reflect our broader outlook of divergent global policy paths and higher macro volatility.

Are you seeing signs of family offices shifting exposures to non-US markets (Europe, the Middle East, Asia, other) and how are they doing this in the main? 
Our existing client investment programs are typically globally diversified – with offices across the US, Europe, and Asia – we have 'boots on the ground’ looking for investment opportunities across the globe. Accordingly, new family offices who would like to work with us are looking to diversify their existing US exposure. 

We are seeing increased interest from this group in building out their European and Asian private debt and buyout investments – we are making allocations across primaries, secondaries, and co-investments. The goal for these families is to add differentiated return drivers without compromising quality of diligence or increasing complexity.

Besides asset allocation, there is "asset location" (what sort of structures, sometimes for tax purposes, to use in holding assets, such as holding share classes that attract capital gains rather than income tax, etc). How important is this to your approach to running clients' money? Can you give examples?
Asset location is a core part of the strategy for each client’s investment program. We marry this with deliberate asset allocation and investment selection to optimize after-tax returns. Examples include tax deferral strategies (e.g. Section 351 conversions) and maximizing tax exclusions (e.g. concentrating QSBS-eligible investments in non-grantor trusts).

When investing with active managers, we always review on an after-tax basis so that expected outperformance clears turnover-driven tax drag. More broadly, within taxable accounts we prioritize tax-efficient equity exposures and systematic tax loss harvesting; we also lean toward private equity and real estate given their generally more tax-efficient, deferred return profiles. 

(It should be noted that Partners Capital does not advise on tax.)