How to Allocate Assets in High-Net-Worth Households

I sat down with Mergermarket and CIO/host Giovanni Amodeo to share my thoughts on "the evolution of private assets in family offices allocation" "Michael Ashley Schulman, CIO and Founding Partner at Running Point Capital (a multifamily office), shares his journey from a childhood stock trader to a seasoned investment strategist. Schulman offers deep insights into the evolving landscape of private assets and how affluent families are navigating #wealthmanagement in today’s complex financial environment." Key Themes & Takeaways 1. The Evolution of Private Markets—Over the past two decades, private markets have matured Growth in #privatecredit, #secondaries, #venturecapital has diversified investment opportunities 2. Family Office Trends—Families typically enter Running Point with 0–5% allocation to private assets A 20–40% allocation can be tailored to each family’s goals and risk tolerance Transitioning to higher private allocations is gradual and opportunity-driven 3. Education Beyond Investments—The real education lies in understanding family priorities, not just asset classes Emphasizes building a holistic financial picture—including assets, liabilities, lifestyle goals, and legacy planning Investment strategies are likened to choosing a route on Google Maps: scenic, fast, or off-road—each with its own risk and reward profile 4. Volatility vs. Real Risk—Distinguishes between market noise and true financial risk Real risk is the inability to meet liabilities, not daily price fluctuations Cash flow is king—especially in private investments that generate income despite being illiquid 5. Private Credit: A Deep Dive—Private credit is a broad category that can mean multiple things Favors opportunistic, covenant-heavy private credit that offers equity-like returns with less risk He also has a strong understanding of #CLOs (Collateralized Loan Obligations) from his time at Deutsche Bank 6. Manager Selection Criteria—Four pillars for evaluating investment managers: Smart: Deep expertise and insight Niche: A clear area of specialization Systems: Robust infrastructure and risk controls Selection Process: A rational, explainable investment methodology 7. Tax Optimization Strategies—Tax planning can yield more value than investment returns Highlights Private Placement Life #Insurance (#PPLI) as a powerful tool: Tax-free compounding Access to bespoke investments (e.g., private credit, hedge funds) Multi-generational wealth planning Liquidity options through borrowing or withdrawals 8. Psychology of Wealth—Families should be sensitive to taxes, more than fees or returns Structuring investments to minimize tax impact is a priority 9. The Future of Wealth Management—Rise in single-family offices is outpacing talent availability Multi-family offices will grow, but true holistic firms remain rare Industry is seeing consolidation driven by #privateequity and economies of scale Sees value in boutique firms that offer personalized, proactive service

I've spent 10 years studying the ultra-wealthy: • How they started • Where they invest • What assets they combine They all follow the same simple formula... Here's the exact framework (that anyone can use): Most investors focus on one asset class: • Regular folks buy stocks • Property people stick to real estate • Entrepreneurs only focus on business But the ultra-wealthy combine 3 specific assets. Their strategy transforms wealth: KKR research shows how the ultra-wealthy allocate wealth: • 46% alternative investments • 20% domestic equities • 15% fixed income • 10% cash The story behind these numbers reveals something fascinating... 1. Real estate Ultra-wealthy investors target properties offering: • Steady rental income • Major tax advantages (40-60% depreciation) • Strong collateral for leverage But here's where it gets interesting... They use real estate as a strategic launching pad. By leveraging their properties, they secure low-interest financing. This capital funds business acquisitions while building wealth through tax-efficient 1031 exchanges. And they use that wealth to fund the next layer... 2. Business ownership. 22% of ultra-wealthy own businesses vs 7% of others—they target companies with: • Proven cash flow • Scalable operations • Tech-enabled growth And once they have mastered that layer... 3. Intellectual property. The ultra-wealthy know IP's power: • Scales without physical limits • Creates competitive moats • Generates multiple income streams This is where exponential growth happens: Their strategy becomes clear in the data. Real estate provides the foundation, generating steady cash flow for acquisitions. This stability helps weather market downturns while creating powerful tax advantages. Private market assets hit $6.5T in 2020. Cambridge Associates data shows: Private equity returned 14.2% annually over 20 years vs 9.7% for S&P 500. This explains the ultra-wealthy's focus on private markets. But there's a bigger opportunity: Research shows wealth transfer succeeds when families: • Mix multiple asset classes • Focus on long-term value • Build sustainable income The ultra-wealthy use this to compound wealth across generations. A decade studying wealth taught me: True wealth isn't built on one asset class. It comes from combining assets and leveraging their strengths. I've documented this entire journey... Each week, I share: • Business evaluation frameworks • Acquisition opportunities • Deal structure tactics • Growth strategies All from $200M+ in real deals I've helped close. Thanks for reading! - If you enjoyed this post: ♻️ Reshare for others who might find it useful 💭 Share your thoughts below 👇

We continue to advocate that investors think differently about their asset allocation strategies, especially given the higher nominal GDP environment in the United States. Specifically, our Regime Change thesis focuses on four key inputs (bigger deficits, heightened geopolitics, a messy energy transition, and stickier services inflation) that we think necessitate a new approach to traditional asset allocation strategies for investors. What do investors need to know? 1: 𝐖𝐞 𝐚𝐭 𝐊𝐊𝐑 𝐞𝐱𝐩𝐞𝐜𝐭 𝐟𝐥𝐚𝐭𝐭𝐞𝐫 𝐫𝐞𝐭𝐮𝐫𝐧𝐬 𝐚𝐧𝐝 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐞𝐝 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧𝐬 𝐭𝐨 𝐧𝐨𝐧-𝐜𝐨𝐫𝐫𝐞𝐥𝐚𝐭𝐞𝐝 𝐚𝐬𝐬𝐞𝐭𝐬 𝐢𝐧 𝐩𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨𝐬. The five-year forward median return across asset classes we forecast is fully 180 basis points lower than what we saw over the last five years (meaning there will be less differentiation between the best- and worst-performing assets in a portfolio, on average). At the same time, ‘old’ #portfolio correlations are breaking down, so asset allocation – not single asset volatility – has a much bigger impact on overall portfolio volatility. Our message is to seek out – all else being equal – more uncorrelated assets in one’s portfolio. 2. 𝐎𝐰𝐧 𝐦𝐨𝐫𝐞 𝐜𝐚𝐬𝐡-𝐟𝐥𝐨𝐰𝐢𝐧𝐠 𝐚𝐬𝐬𝐞𝐭𝐬 𝐥𝐢𝐧𝐤𝐞𝐝 𝐭𝐨 𝐧𝐨𝐦𝐢𝐧𝐚𝐥 𝐆𝐃𝐏 𝐠𝐢𝐯𝐞𝐧 𝐭𝐡𝐞 𝐡𝐢𝐠𝐡𝐞𝐫 𝐫𝐞𝐬𝐭𝐢𝐧𝐠 𝐡𝐞𝐚𝐫𝐭 𝐫𝐚𝐭𝐞 𝐟𝐨𝐫 𝐢𝐧𝐟𝐥𝐚𝐭𝐢𝐨𝐧 𝐭𝐡𝐢𝐬 𝐜𝐲𝐜𝐥𝐞. This includes building flexibility across mandates and carefully considering duration. As such, we strongly believe that an overweight to modestly leveraged Infrastructure and certain Real Estate investments with yield is prudent for adding ballast to one’s portfolio. We are also quite constructive on Asset-Based Finance, which provides numerous shorter duration opportunities with good cash flowing characteristics and sound collateral. 3. 𝐎𝐰𝐧 𝐦𝐨𝐫𝐞 𝐚𝐬𝐬𝐞𝐭𝐬 𝐰𝐡𝐞𝐫𝐞 𝐲𝐨𝐮 𝐜𝐨𝐧𝐭𝐫𝐨𝐥 𝐲𝐨𝐮𝐫 𝐝𝐞𝐬𝐭𝐢𝐧𝐲, 𝐩𝐚𝐫𝐭𝐢𝐜𝐮𝐥𝐚𝐫𝐥𝐲 𝐢𝐧 𝐚 𝐰𝐨𝐫𝐥𝐝 𝐰𝐡𝐞𝐫𝐞 𝐭𝐫𝐚𝐝𝐞 𝐛𝐚𝐫𝐫𝐢𝐞𝐫𝐬 𝐚𝐫𝐞 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐢𝐧𝐠. We suggest tilting portfolios towards domestic consumption stories. We also favor more control situations, especially in the private markets, where operational improvements or strategic consolidation can, at times, drive robust profit growth, especially in #PrivateEquity. We continue to favor political changes that drive corporate reforms, hence our optimism around investing in #Japan. Still, as the convergence and blurring of the lines between national and economic security gains momentum, we expect to see more policies that encourage domestic savings, higher profits, and a lower cost of capital. Read more on asset allocation and portfolio construction in our Outlook for 2025: https://go.kkr.com/3v0WI7Q