In our previous article, we explored how sovereign wealth funds (SWFs) offer valuable governance blueprints for UHNWIs seeking resilient wealth structures. While governance provides a foundation, investment philosophies guiding capital allocation represent its practical application.
UHNWIs have much to gain by reviewing how SWFs invest. While SWFs often operate at a larger scale and with unique constraints in comparison to UHNWIs, both types of investors share a commitment to multi-generational wealth preservation. For example, Singapore’s GIC targets a 20-year investment horizon to achieve returns above global inflation, as outlined in its 2023/24 annual report, enabling it to weather short-term volatility and invest in long-term opportunities like infrastructure. Similarly, the Abu Dhabi Investment Authority (ADIA) adopts a multi-decade perspective, with its official overview emphasizing sustainable growth for future generations.
Five Strategic Principles for Managing Wealth at Scale
Though SWFs manage vast portfolios, their investment principles are scalable and relevant to UHNWIs. Notable examples include:
01 Thematic Investing: GIC organizes its portfolio around macro themes like technology and sustainability, rather than rigid asset classes. As detailed in its 2023/24 report, GIC has made significant investments in the consumer, financial services, healthcare, and technology sectors.
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This thematic approach may resonate particularly strongly with UHNWIs or family offices which have proven investment experience or operational know-how in a given sector, allowing them to concentrate capital where they hold a competitive edge.
02 Benchmarking: All investors aim to generate superior returns; the question is compared to what. New Zealand’s Superannuation Fund’s answer is two complementary benchmarks: treasury bill returns for absolute performance and a “reference portfolio” of 80% equities and 20% fixed income assets for relative performance. The Fund aims for returns of at least 1.8% above this reference portfolio over any 20-year moving average timeframe.
UHNWIs may form their own benchmarks by defining clear, personalized reference points—whether absolute return targets tied to lifestyle needs or a custom portfolio reflecting their risk tolerance and legacy goals—rather than defaulting to broad market indices that may not align with their unique objectives.
03 Liquidity Management: SWFs adopt varied approaches to liquidity, balancing flexibility with long-term commitments. Norway’s Government Pension Fund Global (GPFG) maintains significant liquidity through its substantial allocation to public equities, which accounted for over 70% of its portfolio in 2023. This high allocation to liquid assets provides strategic flexibility during market dislocations. In contrast, Singapore’s Temasek takes a different approach, with approximately 52% of its portfolio in unlisted assets as of 2023, deliberately sacrificing some liquidity for potentially higher returns in private markets.
These differing strategies highlight how SWFs tailor liquidity to their mandates, offering UHNWIs models to balance accessible capital for immediate needs with locked-in investments for generational growth.
04 Risk Management beyond Traditional Metrics: Both SWFs and UHNWIs require risk frameworks that go beyond conventional metrics, addressing broader uncertainties. Here, UHNWIs can draw inspiration from how SWFs approach risk management. For example, Norway’s GPFG uses a combination of:
- Stress testing to assess potential losses resulting from extreme scenarios. Two types of such scenarios are used in modeling – historical ones that have actually occurred in the past like the Covid crisis of 2020 and hypothetical ones that may occur in the future. According to the GPFG’s 2023 risk report, the fund hypothesizes scenarios including pricing corrections for AI-related equities, public debt crises as investors lose confidence in governments, and an increasingly fragmented geopolitical environment marked by higher tariffs and restrictions on cross-border investments.
- Concentration analysis to assess how much the fund’s equity portfolio overlaps with its benchmark index, ensuring diversification objectives are met.
- Factor exposure analysis to determine portfolio sensitivity to different risk factors like small-cap stocks, value stocks, and emerging markets.
- Liquidity risk analysis to assess how quickly the fund can access capital when necessary, especially during market stress.
UHNWIs may consider working with advisors to develop a comprehensive risk framework consisting of similar elements adjusted for their unique portfolios and goals.
05 Sustainability and Legacy Alignment: Many SWFs integrate sustainability into their investment frameworks, not just for ethical reasons but also for long-term risk mitigation and return potential. For instance, Norway’s GPFG emphasizes responsible investing, frequently divesting from companies that breach environmental or ethical standards. Similarly, GIC prioritizes sustainable innovation within its broader thematic focus on technology.
UHNWIs can adapt this by aligning their portfolios with personal or family values — such as climate resilience, social impact, or cultural preservation — while ensuring these choices bolster financial objectives. Doing so might involve integrating ESG (environmental, social, governance) factors or pursuing direct investments in legacy-defining philanthropic ventures.
Sovereign Principles, Private Implementation: The Information Challenge
While SWFs and UHNWIs share many broad similarities in their investment goals, where they differ most significantly is in their structural constraints – or lack thereof. SWFs typically face political oversight and are unable to move as fast as private wealth owners to make investment decisions. For example, Singapore’s GIC likely took several months to finalize its $6.88 billion Citigroup investment in 2008, and Norway’s GPFG requires parliamentary approval for major shifts.
UHNWIs therefore have an opportunity to adopt sovereign principles while leveraging their distinctive strength in making decisions with greater agility and confidentiality. However, this agility advantage comes with a significant challenge: information management. While SWFs have dedicated teams and systems for monitoring their portfolios, UHNWIs often struggle with fragmented information across multiple advisors, custodians, and asset classes.
The Technology Bridge: Enabling Sovereign-Quality Decisions
Implementing SWF-inspired strategies requires having comprehensive visibility of holdings across the entire wealth spectrum. Without clear, accurate, and timely information on their entire wealth picture, UHNWIs cannot effectively apply the strategic principles that make SWFs successful.
Modern wealth management technologies like the Altoo Wealth Platform address this crucial gap by providing consolidated reporting across all asset classes, both bankable and non-bankable. For example, Altoo’s platform features:
- Automated data aggregation from multiple sources
- Cross-custodian portfolio analysis
- Real-time performance monitoring against custom benchmarks
- Scenario-based testing
- Liquidity analysis across entire wealth structures
These platforms ensure wealth owners can make decisions with the same level of insight as sovereign funds while maintaining their agility advantage. By combining SWF investment principles with the speed and flexibility of private wealth, UHNWIs can create truly resilient multi-generational wealth strategies.
To learn more about the platform, please contact us for a demo!
