Rethinking portfolio resilience: Managing downside risk in late-cycle markets

Markets may be near historical highs, yet many investors are increasingly focused on resilience rather than returns alone. Volatility has become more frequent, policy visibility remains limited, and geopolitical developments continue to influence capital markets. 

For many family offices, the question is rarely whether markets will correct. It is more structural: how to remain invested while managing the risk of large, disruptive drawdowns, particularly late in the cycle.

This article explores how family offices think about downside risk - not through prediction, but through portfolio resilience, combining diversification, structural protection, and scenario-aware positioning. 

This content is provided for general informational purposes only and does not constitute investment advice or a recommendation.

Why downside risk matters for family offices

Downside risk refers to the potential for investments to lose value during adverse market conditions. For multi-generational investors, such losses can have consequences beyond short-term performance.

Family office portfolios are often characterised by:

• Concentrated legacy positions
• Illiquid private investments
• Long-term capital commitments
• Ongoing spending, distributions, or philanthropic obligations

Large drawdowns can interrupt succession planning, force asset sales at unattractive prices, or delay reinvestment and compounding. Managing downside risk is therefore less about eliminating volatility, and more about preserving long-term flexibility and optionality.

Diversification and Protection: Different Roles

It is useful to distinguish between two concepts that are often conflated:

 Diversification:

• Reduces reliance on a single return driver
• Broadens exposure across asset classes and strategies
• May dampen volatility over time

Explicit Protection:

• Seeks to limit losses more directly
• Often incorporates defined-risk or structural features
• Typically involves a cost (similar to insurance)
  

For multi-generational capital, both approaches may play a role. The practical challenge often lies in understanding which exposures already exist - and how they interact within the broader allocation.

A Scenario-Based Lens

Instead of predicting markets, portfolios are sometimes assessed against potential stress environments.

From Framework to Visibility

Identifying structural gaps is one step. Understanding how different strategies may complement an existing allocation is another.

Platforms such as Sesame One Marketplace are designed to provide visibility across a broad range of private equity, private credit, hedge funds, real assets, structured solutions, and pre-IPO exposures. Rather than promoting a single strategy, the objective is to allow investors to review different approaches within one consolidated environment and consider how they may interact within their broader portfolio. Any investment decision should be made independently and in consideration of individual objectives, risk tolerance, and professional advice.

Resilience is rarely achieved through a single allocation. It is typically the result of deliberate portfolio design - informed by breadth of access and clarity of structure.

Compliance Note
This material is provided for general informational purposes only and does not constitute investment advice, an offer, or a recommendation.