Family Office Liquidity Preference
Liquidity preference describes how much illiquidity a family office can tolerate given obligations, comfort, and governance.
Definition
Definition Liquidity preference is the family’s practical tolerance for being locked up: fund terms, redemption constraints, capital call uncertainty, and distribution timing. It is shaped by spending needs, tax planning, concentrated holdings, and how comfortable the principal is with long-duration commitments. Allocator Context Families often say they are “long-term,” but still require predictable access to cash. Illiquidity becomes a problem when obligations don’t stop: taxes, real estate, family spending, philanthropic commitments. The families that allocate successfully to private markets typically manage liquidity intentionally through reserves and pacing. Decision Authority CFO and CIO manage liquidity planning; principal sets comfort thresholds. Liquidity preference is often a silent veto: if it doesn’t work, it doesn’t close. Why It Matters for Fundraising Liquidity preference determines commitment feasibility. Managers who understand and communicate pacing, calls, and reporting honestly are easier to approve. Key Takeaways Liquidity is both financial and psychological comfort Capital calls and timing uncertainty are key friction points Liquidity planning drives feasible ticket sizes Honest liquidity framing improves trust