Alternative investments have seen explosive growth in recent years, but with that growth comes a familiar challenge: liquidity.
As family offices increase their exposure to private equity, venture capital, and other alternatives, they face the reality that these assets can be hard to offload when cash is needed most. Current market conditions only intensify this issue, as many funds struggle to return capital to investors on time.
The Rise Of Alternative Investments
Family offices have become major players in the alternative investment space, with some allocating nearly half of their portfolios to illiquid assets like private equity, according to a 2024 J.P. Morgan report. Their confidence in the long-term potential of these investments is clear, but so is the liquidity risk.
As Gregory Pool from New Edge Wealth outlined in a recent podcast titled Borrowing Against Your Alternative Investments, “Allocations have grown dramatically, but liquidity hasn’t kept pace” – and with so much capital tied up, investors are often left watching from the sidelines as new opportunities pass by.
Liquidity Struggles In The Current Market
The liquidity issue has only worsened as markets tighten. “Very little capital has been returned from these funds since 2021,” noted Patrick Dwyer from New Edge Wealth, highlighting the growing frustration among investors. Many expected regular distributions but are now stuck, unable to access their money when they need it most.
This illiquidity presents a unique opportunity for family offices that can afford to be patient. According to a Wealth Management report, their long-term investment horizon and flexibility position them to capitalize on market dislocations that might scare off others. However not all family offices can always be patient. As Mike Roffler, board member at LiquidLP and former CEO at First Republic puts it, “We’ve had liquidity just completely dry up. So you’re getting no distributions, and you’re also getting presented pretty good opportunities for new funds, but the liquidity is just scarce.”
The Demand For Tailored Liquidity Solutions
As traditional financial institutions fall short in offering liquidity solutions, private lenders and alternative platforms are stepping in. Investors are increasingly seeking loans backed by their illiquid portfolios, allowing them to access cash without selling at a loss.
Family offices, in particular, are responding by diversifying their portfolios within alternatives. A 2023 BlackRock survey shows an increase in allocations to private credit and infrastructure—moves designed to create more structured, resilient portfolios in uncertain times.
Specialized platforms, like LiquidLP, offer streamlined access to liquidity solutions. Alex Simpson, of LiquidLP, noted the importance of working closely with wealth managers to tailor solutions to the specific needs of high-net-worth clients. “Wealth managers understand their clients best, and that helps set realistic expectations,” he said.
A New Alternative: Lending Against Alternative Investments
Given these challenges, an emerging solution is borrowing against alternative portfolios. Unlike secondary sales, borrowing allows investors to maintain ownership of their assets while gaining access to liquidity, without incurring capital gains taxes that come with selling.
As Mike Roffler and Alex Simpson outline, lending against private investments offer a more favorable option than liquidating assets in the secondary market.
The Role Of Niche Lenders
Traditional banks are generally not suited to provide this type of lending; as Roffler notes, banks are more focused on real estate, credit cards, and auto loans, and often lack the expertise or internal processes to lend against alternative assets. Instead, niche lenders have stepped in to fill this gap, offering customized loans to high-net-worth individuals with significant alternative portfolios.
Approaches For Family Offices Tackling Liquidity
The private lending market for high-net-worth individuals is growing, driven by increasing demand for liquidity solutions outside of traditional banking channels. Both Roffler and Simpson expect this trend to continue as more investors become educated about the benefits of borrowing against their alternative portfolios.
In fact, major financial institutions like Goldman Sachs have started offering similar services to their RIA channels, signaling broader adoption of this niche lending approach.
As alternative investments continue to grow, so do the challenges around liquidity. Family offices need more than just patience—they need creative solutions to navigate the illiquidity trap and seize new opportunities.
By partnering with specialized platforms and lenders, investors can keep their portfolios intact while ensuring they have the flexibility to act when the next big opportunity arises – such tailored liquidity solutions are likely to play a critical role in helping investors unlock the full potential of their alternative investments.