Over the next 20 to 25 years, more than 83,000 billion dollars in wealth is expected to be transferred between generations worldwide, according to the UBS Global Wealth Report.
In France, where a significant portion of wealth is held by older generations, this demographic shift underscores the importance of a well-thought-out wealth transfer strategy.
This phenomenon, often referred to as the “Great Wealth Transfer,” illustrates the growing importance of wealth transfer strategies among high-net-worth families and long-term investors.
In this context, the composition of investment portfolios is changing. Alongside real estate, publicly traded stocks, and life insurance, unlisted assets—particularly private equity—are playing an increasingly important role in asset allocation. Long reserved for institutional investors, these assets are geared toward creating value over several years, which can be part of a broader strategy for wealth transfer.
But is private equity really suitable for a wealth transfer strategy? What are its advantages, limitations, and key considerations? This article analyzes the role that unlisted assets can play in a long-term wealth management strategy, drawing on practices observed among institutional investors and high-net-worth families.
Can unlisted assets contribute to a wealth transfer strategy?
Yes, unlisted assets can play a role in a wealth transfer strategy, provided they are integrated into a coherent overall asset allocation that is tailored to the family’s objectives.
Unlike publicly traded assets, private equity takes a long-term approach. Investments are generally held for eight to twelve years—the time needed to support the growth of the companies being financed before they are sold. This investment horizon can align with a wealth management strategy that is often built over several decades, or even across several generations.
Institutional investors and high-net-worth families are not solely seeking potential returns. They also use unlisted assets to diversify their portfolios, gain access to unlisted companies, and gain exposure to value drivers that differ from those of the financial markets.
Why is wealth transfer no longer limited to traditional assets?
Passing on a family fortune is no longer simply a matter of dividing up real estate or a portfolio of publicly traded stocks. Changes in private wealth, financial markets, and investment strategies are leading many families to diversify the assets they intend to pass on.
Today, the largest portfolios often consist of several complementary asset classes. Alongside real estate, financial investments, and life insurance, unlisted assets are playing an increasingly important role in long-term asset allocations.
This trend reflects an investment approach that focuses more on diversification and value creation over several years than on the sole pursuit of liquidity.
An increasingly diverse range of assets
Investors with significant assets generally seek to diversify their investments across multiple asset classes in order to limit their dependence on a single market.
This diversification may include:
- real estate;
- listed stocks;
- bonds;
- cash;
- unlisted assets, including private equity.
Each category serves a different purpose within a wealth management strategy. In particular, unlisted assets provide exposure to the real economy and to companies that are not accessible on the financial markets.
A vision of heritage built over several generations
The transfer of family wealth is rarely based on short-term considerations.
Whether it involves preparing a gift, organizing an estate, or supporting multiple generations of the same family, wealth management decisions are generally made with a long-term perspective in mind.
This timeframe is similar to that of private equity, whose value-creation strategies take several years to yield results. While it is not a succession planning tool in and of itself, private equitycan thus be integrated into a more comprehensive wealth management strategy when its investment horizon is compatible with the family’s objectives.
Why can private equity play a role in a wealth transfer strategy?
Private equity was not originally designed as a tool for wealth transfer. However, several of its characteristics make it an asset class that can be incorporated into a long-term wealth management strategy.
Unlike investments aimed at immediate liquidity, private equity is based on an investment horizon that generally ranges from eight to twelve years. This timeframe is often consistent with the goals of families who are gradually preparing to pass on their wealth rather than seeking a short-term sale.
Beyond its investment horizon, private equity also provides access to unlisted companies, whose drivers of value creation differ from those of the financial markets. For many high-net-worth investors, this diversification serves as a complementary element in building a portfolio of assets intended for transfer to the next generation.
An investment horizon that is naturally aligned with a long-term vision
The transfer of family assets is generally planned several years before it takes effect.
Whether it involves arranging a gift, facilitating the transfer of a family estate, or planning an estate, financial decisions are often made with a perspective that extends beyond a single generation.
Private equity operates on the same timeframe. Management firms invest in companies and support them for several years before considering a sale. This approach fosters gradual value creation rather than a focus on short-term performance.
This convergence between wealth management and investment objectives explains why many high-net-worth families include private markets in their long-term asset allocation.
Diversifying the Inheritance Passed Down
A wealth transfer strategy is rarely based on a single asset class.
Real estate, publicly traded stocks, bonds, cash, and life insurance policies each serve specific objectives. Private equity can complement this portfolio by providing exposure to unlisted companies and different drivers of value creation.
This diversification is not solely aimed at seeking potential returns. It also helps reduce a portfolio’s dependence on a single asset class or market environment.
As with any investment allocation, the allocation across different asset classes must remain aligned with each family’s investment objectives, risk profile, and liquidity needs.
Gain access to unlisted companies that create value
A significant portion of global economic growth is now driven by companies that remain privately held for longer than before.
By investing in private equity, investors gain access to a range of innovative companies, growing small and medium-sized enterprises, and companies undergoing transformation—many of which are not listed on public stock markets.
For a family building its wealth over several decades, this exposure can serve as a complement to traditional assets, contributing to a broader diversification of potential sources of value creation.
It should be noted, however, that these investments involve a risk of capital loss and that past performance is not indicative of future results.
An approach consistent with the preservation of the family heritage
Wealth transfer is not just about passing on capital. It also aims to preserve wealth over the long term and adapt it to the goals of future generations.
From this perspective, private equity is focused on the growth of the companies it invests in, rather than on day-to-day fluctuations in the financial markets.
This philosophy aligns with that of many long-term investors, who prioritize sustainable value creation, diversification, and an intergenerational approach to their wealth.
What factors should be considered before incorporating unlisted assets into a succession planning strategy?
Private equity can be part of a wealth transfer strategy, but it is not suitable for every situation. Like any asset class, it has specific characteristics that must be taken into account before making any investment decision.
The investment horizon, the ability to tie up a portion of one’s assets, the desired level of diversification, and the quality of the asset management firms are all factors that influence the suitability of an allocation to unlisted assets.
An effective wealth transfer strategy relies first and foremost on the overall balance of the entire portfolio, rather than on the performance of a single asset class.
The lack of liquidity must be consistent with the family's needs
One of the main characteristics of private equity is its illiquidity. Unlike publicly traded stocks or certain financial investments, the capital invested is generally tied up for several years.
This characteristic is not necessarily incompatible with a wealth transfer strategy. On the contrary, when a family invests with a time horizon of several decades, this timeframe may be consistent with its objectives.
On the other hand, unlisted assets are generally not suitable for financing short-term liquidity needs. They must therefore be included in a sufficiently diversified portfolio to preserve the financial flexibility of the assets.
The risk of capital loss remains
Private equity primarily invests in unlisted companies, whose valuations can rise or fall.
Like any investment in stocks, this asset class involves a risk of capital loss, linked in particular to the performance of the companies in which investments are made, the economic environment, or the terms of exiting the investments.
From the perspective of wealth transfer, this reality underscores the importance of building a balanced asset allocation across multiple asset classes, taking into account the family’s risk profile and long-term goals.
The selection of fund managers remains a key factor
One of the distinctive features of private equity is the wide variation in performance among funds.
There can be a significant gap between the best-performing and worst-performing fund managers. This variation is more pronounced than in many listed asset classes.
For institutional investors as well as wealthy families, selecting investment management firms is therefore a major challenge. The teams’ experience, their investment discipline, their sector specialization, and their ability to support company executives are among the key criteria analyzed before any investment commitment is made.
Appropriate diversification remains essential
Unlisted assets are intended to supplement an investment portfolio, not to replace it.
Institutional investors generally spread their investments across several asset classes to limit their exposure to a single market or investment strategy.
This diversification can take place at several levels:
This approach does not eliminate the risks inherent in private equity, but it helps build a more resilient portfolio from a long-term perspective.
Why do wealthy families and institutional investors include private equity in their investment portfolios?
Private equity now plays a significant role in the portfolios of many institutional investors. Pension funds, university endowments, insurance companies, sovereign wealth funds, and family offices allocate a significant portion of their assets to private markets.
This investment strategy is not based solely on the pursuit of performance. It also reflects a desire to diversify sources of value creation, gain access to unlisted companies, and build portfolios capable of weathering multiple economic cycles.
For investors with a multi-decade time horizon, private equity thus serves as a complementary component of a long-term wealth management strategy.
An approach designed to last for generations
Managing a family’s wealth is not limited to preserving capital. It also involves organizing its transfer in a way that is consistent with the goals of future generations.
This logic explains why many wealthy families favor a long-term perspective rather than a management approach focused on daily fluctuations in the financial markets.
Private equity fits naturally into this approach. Investments are made with a time horizon of several years, during which management firms support the companies’ growth before considering their sale. This time frame is consistent with a wealth management strategy that is built up gradually.
Diversifying the Drivers of Value Creation
The largest portfolios are rarely based on a single asset class.
Institutional investors seek diversification across real estate, public markets, bonds, infrastructure, private debt, and private equity in order to limit their reliance on a single source of returns.
Private equity provides exposure to unlisted companies whose value creation is based primarily on their operational development, growth, and transformation, rather than on day-to-day fluctuations in the financial markets.
This complementarity explains the growing role of unlisted assets in long-term asset allocations.
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