Contributed by: Dale Shaw, CFP®, RICP®
Introduction: The Illusion of Liquidity
Wealth is not always synonymous with flexibility. For many high-net-worth families—particularly those with significant holdings in private equity, real estate, or closely held businesses—net worth often includes assets that are valuable on paper but illiquid in practice. When markets are calm and capital is abundant, this distinction is academic. But in times of financial turbulence—such as a market correction, a spike in interest rates, or a credit squeeze—the ability to quickly access capital without disrupting a broader strategy becomes essential.
Liquidity resilience is the capacity to weather these moments of pressure without being forced to sell valuable long-term assets at the wrong time or under duress. It is a foundational component of long-term financial health, but often the least discussed. At Granite Harbor Advisors, we believe this is not just a technical issue—it’s a strategic one. And for families managing complex balance sheets, now is the time to stress-test and strengthen that foundation.
The Hidden Risk of Illiquidity in High-Net-Worth Portfolios
It is common for successful families and business owners to accumulate wealth in assets that are not readily convertible to cash. These include:
- Private equity or venture capital holdings with multi-year lockups
- Real estate assets with low liquidity and high transaction costs
- Operating businesses where value is substantial but inaccessible
- Complex insurance strategies that require structured access
- Concentrated stock positions that are difficult to unwind without market impact
These assets may generate impressive long-term returns, but they often come with restrictions. When the economy tightens or asset values fluctuate, accessing liquidity—especially without triggering tax consequences—becomes a challenge. Worse, families may find themselves having to choose between selling underperforming public assets, taking on debt at unfavorable terms, or compromising long-term estate strategies.
This raises the question: how do you build a liquidity strategy that prepares—not reacts—to volatility?
Building a Stress-Tested Liquidity Framework
A robust liquidity strategy doesn’t rely on a single lever. It’s an integrated system that blends scenario planning, asset tiering, flexible capital access, and proactive governance.
1. Modeling Cash Flow Shocks
Stress testing begins with realistic scenario modeling. We work with families to simulate adverse conditions such as:
- A 25% drawdown in public markets
- A 15% devaluation in real estate or private holdings
- A 200 basis point increase in debt service costs
- A liquidity freeze in private markets or capital call clusters from investment funds
The objective is not to predict the next downturn, but to understand how different segments of the balance sheet behave under pressure—and whether the family has enough flexibility to navigate such a scenario without impairing long-term goals.
2. Establishing Liquidity Tiers
At Granite Harbor, we often categorize assets into three tiers:
- Tier One: Immediately accessible cash or near-cash equivalents
- Tier Two: Semi-liquid assets that can be monetized within three to six months
- Tier Three: Illiquid assets with long holding periods, complex exit structures, or substantial tax considerations
Families should understand what portion of their wealth sits in each tier—and whether the proportion aligns with their lifestyle needs, business obligations, and long-term investment strategy. Liquidity isn't just about having cash; it's about being able to make decisions without being forced into them.
3. Managing Leverage and Contingency Funding
Leverage amplifies both opportunity and risk. When used responsibly, it can enhance tax efficiency and unlock strategic investments. But in downturns, leverage is often the pressure point that forces liquidity decisions.
We advise clients to review:
- Debt maturity schedules and ensure they don’t cluster at inopportune times
- Covenant structures that could be triggered by market revaluations
- Interest rate exposure, especially if borrowing costs are rising
- Access to committed lines of credit or liquidity facilities that can be drawn if needed
In addition, some families benefit from structured products or collateralized loan arrangements tied to their insurance portfolios or securities. These solutions must be evaluated carefully for alignment with estate and tax objectives.
4. Coordinating Personal, Business, and Investment Planning
Liquidity management must be integrated—not siloed. A family’s operating business may have substantial value but limited flexibility. Similarly, personal investment portfolios may be rich in opportunity but short on cash. We help clients coordinate across:
- Operating companies (OpCo), where working capital or distributions are affected by business cycles
- Holding companies (HoldCo), which often serve as the bridge between operations and estate planning vehicles
- Personal entities, including trusts, family offices, and investment partnerships
This integrated view allows families to avoid unexpected bottlenecks—such as being unable to access funds from a trust due to distribution restrictions, or discovering that pledged collateral is tied up in multiple places.
5. Establishing Decision Protocols in Advance
Even the most sophisticated families can be caught off guard when stress hits. Without a clear decision-making framework, liquidity decisions can become reactive, rushed, or misaligned with long-term intent.
It may make sense for your family to consider creating liquidity protocols:
- Liquidity governance charters, outlining roles and responsibilities across generations or business stakeholders
- Predefined triggers for when to access reserve capital or reduce distributions
- Regular liquidity reviews as part of annual family office meetings or board-level financial updates
The Emotional Dimensions of Liquidity Planning
Beyond spreadsheets and capital stacks lies an emotional truth: liquidity is peace of mind. It’s knowing that if the unexpected happens, your family will not have to make painful decisions under pressure. That distributions won’t be cut without warning. That philanthropic commitments can continue uninterrupted. That your legacy can be protected, not compromised, during difficult times.
For many of our clients, this peace of mind is just as important as maximizing returns. And it’s precisely this type of planning—complex, thoughtful, and tailored—that Granite Harbor Advisors is built to deliver.
Conclusion: Liquidity as Strategy, Not Reaction
In today’s environment, the families and business owners who fare best are not those who avoid volatility—they are the ones who plan for it. Liquidity resilience is not a defensive move. It’s a strategic advantage that empowers flexibility, preserves optionality, and protects long-term goals.
At Granite Harbor Advisors, we believe this kind of planning should never be an afterthought. It should be central to every family’s strategy—built on disciplined analysis, expert coordination, and trusted advice.
If you’re unsure whether your current balance sheet could withstand a sustained period of turbulence, it may be time for a second opinion. The goal isn’t to predict the next downturn—it’s to ensure your plan is strong enough to navigate through it, confidently and intact.