Asset Allocation Strategy for a Family Office with ESG Focus

Imagine you are a senior portfolio manager at a wealth management firm, tasked with implementing an asset allocation strategy for a family office that has a unique investment profile. The family office has $10 million in investable assets, a long-term investment horizon of 20 years, and prior experience in private equity and alternative investments. The family expresses a desire for capital appreciation with a secondary focus on income generation.

The family’s risk tolerance is moderate, but they express concern about market volatility and wish to avoid significant drawdowns. They also value socially responsible investing (SRI) and wish to incorporate environmental, social, and governance (ESG) factors into their investment decisions. You will need to construct a detailed approach to asset allocation that balances these requirements, justifying your choices and discussing the implementation challenges you might face.