How Family Offices Can Bring Institutional Discipline to Private Markets

As family offices deepen their exposure to private markets, many are discovering that access alone is no longer sufficient to drive outcomes. Increasing allocation sizes, prolonged liquidity cycles and heightened dispersion across managers are exposing execution gaps in portfolio construction, pacing and governance. At the same time, delayed distributions and persistent volatility are placing new pressure on cash flow assumptions, forcing firms to rethink how they structure and manage illiquid portfolios.

Karen Harding, partner and private wealth team leader at NEPC, works closely with family offices navigating these challenges and advises on building more resilient, institutional-quality private markets programs.

CM: Many family offices are increasing private markets allocations, sometimes quite rapidly. Where do you see the biggest execution gaps emerging as programs scale from, say, 10% to 25–30% in alternatives?

KH: The biggest gaps tend to emerge around liquidity management and portfolio construction discipline. Private markets behave very differently from public markets since capital is committed upfront but deployed over time, and portfolios can take years to reach their target allocation due to the J-curve dynamic.

As allocations scale, many family offices underestimate how complex it becomes to manage pacing, diversification across vintage years, and the sequencing of commitments. Without a well-developed framework, allocations can drift, liquidity can become constrained, and the program may begin to behave in ways that were not originally intended.

What separates successful programs is the ability to approach private markets with institutional rigor, with comprehensive pacing plans, disciplined manager selection, and an understanding that execution, as well as access, ultimately drives outcomes.

The family offices that tend to navigate this well are the ones that bring a more institutional mindset to the process. They are deliberate about pacing, disciplined in manager selection, and recognize that execution, as well as access, ultimately drives outcomes.

CM: You’ve described liquidity strain as a structural feature of private markets, not just a cyclical issue. What does that mean in practice for a multi-generational family office?

KH: In practice, it means recognizing that private markets impose a liquidity strain by design. Capital is drawn in the early years of a fund’s life while distributions don’t come until much later, so the investment is cash flow negative for an extended period.

For a multi-generational family office, this becomes a structural planning issue rather than something that can be solved tactically. There is no easy exit option and adjusting allocations takes time.

As a result, families need to build liquidity planning directly into their investment framework, including multi-year cash flow models that can project whether the distributions from older investments will be sufficient to meet the capital call requirements for newer investments.

CM: With distributions slowing, how are you helping clients rethink their liquidity waterfalls and sources of cash for capital calls?

KH: The slowdown in distributions has made liquidity planning significantly more complex. In many portfolios, distributions are no longer arriving at the pace clients expected, which disrupts how capital calls are funded.

In response, at NEPC, we’re encouraging clients to take a more holistic view of their liquidity profile rather than relying solely on private market distributions. This includes stress testing portfolios, mapping expected cash flows over time, and aligning capital commitments with realistic liquidity assumptions.

This often leads to a reassessment of liquidity waterfalls, including greater reliance on liquid assets or credit lines so that capital calls do not create unnecessary pressure during periods of market stress.

CM: How has the current distribution slowdown disrupted traditional capital recycling assumptions for private equity and credit portfolios?

KH: Historically, many private markets programs relied on a relatively smooth cycle of distributions to fund new commitments, but that assumption has been disrupted as distributions have slowed.

The result is that capital recycling is no longer as dependable as it once was. Family offices are adapting by rethinking pacing or slowing commitments, or by looking to alternative funding sources, such as liquid assets or credit facilities, to ensure capital calls can still be made in the absence of distributions.

CM: Are you seeing family offices pause new commitments, or are they more often rebalancing between strategies (e.g., secondaries vs. primaries) to keep plans on track?

KH: A full pause remains relatively uncommon. What we are seeing instead is more selective deployment and a willingness to adjust within the asset class.

Secondary markets, in particular, have become a more accepted part of the toolkit, both as a source of liquidity and as a way to reposition portfolios.

More broadly, there is a shift toward quality and flexibility. Families are focusing more on manager selection, strategy mix, and pacing rather than simply maintaining commitment levels. The emphasis has moved from maintaining exposure to managing it more actively.

CM: For families that historically relied on relationships or brand to choose managers, what first steps do you suggest to move toward a more disciplined, repeatable process?

KH: The transition is less about replacing relationships and more about formalizing decision-making around them.

The first step is to define clear evaluation criteria: what constitutes a strong manager, how strategies fit within the broader portfolio, and how success is measured across cycles. From there, the focus shifts to building a repeatable process that applies those standards consistently.

A thoughtful, consistent approach to manager selection is one of the most important drivers of long-term success in private markets.

CM: As private markets allocations rise, what gaps in investment policy statements (IPS) show up most frequently in family office portfolios?

KH: The most common gaps are around liquidity and implementation.

Many IPS documents define a target allocation to private markets but lack the supporting framework needed to execute it effectively, e.g., things like commitment pacing guidelines, liquidity thresholds, and cash flow assumptions.

Without these guardrails, it becomes difficult to manage the program in practice, especially as allocations grow and complexity increases.

At NEPC, the more robust IPS frameworks we see explicitly incorporate liquidity planning and provide clear parameters for how the private markets allocation should be built and maintained over time.

CM: What’s one practical change a family office could make in the next 6–12 months that would most improve the resiliency of its private markets portfolio?

KH: Developing (or refining) a comprehensive pacing plan would likely have the greatest impact.

A well-constructed pacing plan models expected capital calls and distributions across the entire private markets portfolio and aligns them with the family’s broader liquidity needs.

In an environment where distributions are uncertain and exit timelines have extended, that visibility becomes critical. It allows families to calibrate commitments more precisely, avoid overextension, and respond more effectively when conditions change.

In an environment where distributions are less predictable, improving visibility into cash flows is one of the most effective ways to strengthen portfolio resiliency.