Risk you can't see, measured.
A family office asked Northfield to quantify and attribute the risk in a multi-asset portfolio that was nearly half illiquid — private equity and real estate whose reported returns quietly understated their true volatility.
Was the leverage in the private book hiding serious risk?
The family office held a multi-asset portfolio — roughly half traded public equity, nearly as much again in illiquid private equity and real estate. Its worry was specific: the leverage inside those private investments might be loading the book with serious risk that no one was measuring. Northfield was asked to quantify the total risk — and, more importantly, to find where it actually came from.
The illiquid half was the hard part. Statistics built on reported returns understate risk for private assets, because their values barely move until someone marks them — a book can look calm on paper and be anything but. To find the real risk, the private holdings had to be read in the same terms as everything else.
That is what the Everything Everywhere model does: it represents each illiquid position by its underlying factor exposures, putting private equity and real estate on the same footing as public markets. With the whole portfolio finally comparable, the source of the risk was there to read — and it wasn't where the family expected.
The challenge
- A worry that leverage inside the private companies was hiding serious, unmeasured risk.
- Nearly half the book illiquid — private equity and real estate whose values barely move until they're marked.
- Two questions to answer: how much risk in total, and where does it actually come from?
- A portfolio tilted well outside the US, where a standard index would misjudge the risk.
The approach
- The Everything Everywhere model — 6M+ securities across global equity, fixed income, real estate, currencies, and macro.
- Public equity read directly from existing model coverage.
- Real estate proxied by REIT portfolios, bridged into the model and stripped of public-equity beta to isolate pure property returns.
- Private equity matched to public-company proxies by business, home country, and size — adjusted for leverage and illiquidity.
- Unfunded cash-call commitments modeled as forward commitments carrying extra volatility.
The risk was in a surprising place.
The family came in braced for the wrong problem. They assumed the leverage inside their private companies was quietly stacking up risk — but lenders had already capped that, and it barely showed. The risk they couldn't see sat in what they still owed: capital committed to funds and not yet called. That turns the whole task from a balance-sheet problem into a cash-flow one — less about cutting leverage than about keeping liquidity ready for the calls ahead. Underneath it is the larger point for any long-horizon investor: the real cost of illiquidity isn't hidden volatility, it's losing the freedom to rebalance when conditions turn. Expressed as factor exposures — and measured against the family's own portfolio, not a US index that would have misjudged a book leaning offshore — the private book could finally be hedged and rebalanced in liquid markets. Nearly half the portfolio stopped being a blind spot.
One multi-asset model
6M+ securities across global equity, fixed income, real estate, currencies, and macro — every holding expressed in one coherent risk world.
Proxies for the illiquid
REIT portfolios for private real estate; public-company proxies for private equity, matched by business, country, and size, then adjusted for leverage and illiquidity.
Common vs. specific
Risk decomposed into common factors — geographic, sector, and macro — and security-specific risk, read across the whole portfolio rather than asset class by asset class.
Leverage, cash calls, tails
Firm- and fund-level leverage handled distinctly, unfunded commitments treated as forward volatility, and log-normal returns respecting non-recourse debt structure.
Runs on the ALPHA stack
Get in touch
See the risk in all of it.
Bring your whole portfolio — public and private, liquid and illiquid — onto one factor framework, so the risk you can't observe becomes risk you can measure and hedge. Let's map it to your book.
Talk to us →Client anonymized. Drawn from a 2012 Northfield family-office consulting engagement (illustrated internally as "Hypothetical Management Company"); portfolio composition, treatments, and findings characterize the analysis and method rather than any single reported metric. Representative of Northfield's private-asset and multi-asset risk work.