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Analysis: For Investors, Asset Location, Not Just Allocation, Is Central

Tom Burroughes

18 September 2024

Asset “location” seems to be as strong a theme among investment strategists as “allocation” now – perhaps a situation caused by concerns of rising tax and regulations in parts of the world. There have been a mass of elections in 2024, such as in the UK, India and France. And the most significant, arguably of all takes place on 5 November.

Fears that taxes such as capital gains could rise have, along with other forces, put the location of investments into the limelight to an extent that appears to be relatively new by the standards of recent years. During the 1990s and subsequent 20 years, while tax wasn’t a negligible issue – it never is – it appeared not to be as significant as it is now. However, some of this is impressionistic, and there's no clear evidence of how significant the change might be.

As part of our September range of conversations with large wealth and asset managers about approaches to how assets are deployed, the “asset location” point came up. If or when policymakers tax carried interest on private equity, for example, or raise CGT, it is going to affect approaches to risk-taking and increase the attractions of sometimes less flashy investments that don’t attract political attention. Earlier in August, for example, this point was forcibly made by a global investment firm working with clients including family offices, issued a white paper, Optimizing Wealth Infrastructure for Families, authored by Sean Sullivan and Heather Jablow.

Cambridge Associates says it is a pioneer in understanding and explaining what is known as “investment administration” – the business of putting the building blocks of investment together, with an eye to governance, tax, ownership structures, consolidated reporting, portfolio administration (such as placing and signing off on trades, completing subscription documents, paying capital calls, cash monitoring, approving consent documents), terms of brokerage and custody accounts. 

Last week, , the Oaks, Pennsylvania-headquartered financial and technology solutions group has minted a term that it thinks speaks to some of the changes going on: the “new wealth portfolio.” And perhaps inevitably, the way that asset asset allocation and location is affected by technology came up in the conversation.

“Sitting at the intersection of investment management and technology, the "new wealth portfolio" is evolving with a dual purpose: deep personalisation for a household’s goals and maximization of the household portfolio’s terminal value,” Erich Holland, who leads the go-to-market strategy for sales and distribution for SEI’s Advisor business, told this publication.

“From exchange-traded funds to separately managed accounts to the retailisation of alternatives, the rise of new product types and structures has led to a greater ability for advisors to customize at the account level. Technology underpins those product structures and, when used effectively, it enables financial planning benefits like tax-loss harvesting and proper asset allocation and rebalancing,” Holland said.

“The integration of technology and investment management can improve total portfolio value outcomes by leveraging multi-account management to rebalance across account types for optimal asset location, enhancing the withdrawal process for tax efficiency, and managing for all tax-loss harvesting opportunities. The `new wealth portfolio’ benefits from more sophisticated household-level management and tax optimisation – delivering a new level of value for advisors and investors,” Holland added.

With technological tools growing more sophisticated, and tax and other government controls unlikely to decline anytime soon, the "location" of investment is likely to be as significant in coming years as the allocation side. Expect to read more about this trend in these pages in coming months.