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Asset Allocation with Shadow Assets

The wealth of most investors contains both financial assets as well as non-financial assets. This paper defines shadow assets as (mostly) non-financial and non-tradable assets that are exogenous to the investor’s asset allocation decision. Examples for shadow assets are human capital, non-financial sovereign assets (e.g. underground oil reserves) the present value of future alumni contributions for university endowments or the non-listed family business for the client of a family office. Allocations to these shadow assets can hardly be changed and yet their existence will change the investor’s perspective on total wealth at risk. A revisited version of this paper was published in the Winter 2012 issue of the Journal of Wealth Management.

Author(s) :

Bernd Scherer

Summary :

The wealth of most investors contains both financial assets as well as non-financial assets. This paper defines shadow assets as (mostly) non-financial and non-tradable assets that are exogenous to the investor’s asset allocation decision. Examples for shadow assets are human capital, non-financial sovereign assets (e.g. underground oil reserves) the present value of future alumni contributions for university endowments or the non-listed family business for the client of a family office. Allocations to these shadow assets can hardly be changed and yet their existence will change the investor’s perspective on total wealth at risk. A revisited version of this paper was published in the Winter 2012 issue of the Journal of Wealth Management.

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Type : Working paper
Date : 05/02/2011
Keywords :

Asset Allocation