Portfolio construction in a regime of greater choice and dispersion

Chris Forrest is not interested in pretending the future is predictable. His view is portfolios should be built to meet client objectives with the resilience to withstand shocks to the market. One of the founders of Esencia Wealth, a $1.5 billion practice built from three businesses coming together three years ago, brings a refreshingly candid lens to portfolio construction.

His view is that the old defaults no longer hold, and that advisers who have not yet seriously engaged with private markets are overdue for a rethink.

The home bias question

The starting point for Forrest is a question that sounds simple but sits uncomfortably in many portfolio construction conversations: if you genuinely believe in a market-cap weighted approach to global equities, why would a growth portfolio hold 30 per cent in Australian shares?

“If you’re a purist about equities, why would your growth portfolio have 30 per cent Australian shares?” he asks. “Why wouldn’t it be the 2 or 3 per cent that represents what the global index actually is?”

He acknowledges the counterarguments. Australian shares have advantages for income-focused portfolios, franking credits matter, exchange rates matter and there are genuine reasons to maintain an overweight domestic exposure.

His point is that the default allocation to Australian equities in growth portfolios often reflects habit and bias rather than objectivity, and that the case for a structural overweight to global markets deserves consideration.

The question Forrest is implicitly asking is whether the domestic equity weight in their portfolios is a deliberate decision, an inherited one or reference to historical biases.

Private markets are no longer an institutional privilege

Forrest points to the democratisation of private markets as one of the most significant shifts in the current environment. What once required institutional scale, the kind of access reserved for large superannuation funds and family offices with substantial assets, is now available to a much broader range of clients. But buyer beware – do your homework.

“There’s a big shift going on. Advisers at large are going to private assets for income, in turn moving away from regular fixed interest and regular franked Australian shares.”

Forrest is not suggesting advisers abandon listed markets or chase illiquid exposures without proper client education. His point is more considered than that.

The free lunch of diversification, a phrase he uses deliberately, now has more components available to it than at any point in the history of private wealth management. Ignoring those components is a choice, and advisers should be making it consciously, with reference to investor objectives, rather than by default.

The practical question he raises for practices thinking about this shift is one of balance. Putting all fixed income into private credit, for example, is probably a bad decision. But using private credit, infrastructure, real assets and private equity as components within a genuinely diversified portfolio, sized appropriately and explained clearly to clients, is a different proposition entirely.

Dollar cost averaging and the path of least resistance

Client anxiety during volatile markets is not a problem to solve. It is a conversation to navigate. The question Forrest brings to those conversations is not when to invest, but what approach gives each client enough confidence to stay invested when discomfort is at its highest.

His reference point is a simple chart showing asset accumulation over 30 years, dotted with every major crisis and point of uncertainty along the way. The message is always the same: there is never a perfect moment to invest. The question is always whether the strategy and investment timeframe is right, not whether the timing is.

“Talking to strategies with clients, what might suit them. Is it dollar cost averaging? Here are the pros and cons. It’s maybe the path of least resistance,” he says. “And that is the terminology actually used with clients. What is the path of least regret for you?”

For advisers managing clients who are paralysed by market noise, that approach offers a way to move the conversation from anxiety about timing to confidence in process and getting started.

Client education

Forrest’s closing thought runs through everything he says. Private markets, alternative income sources, global equity reweighting, none of it works without client education as the foundation.

“You’ve got to educate clients,” he says. “Diversification is your best friend as an adviser and for clients.”

The tools are there; the access is there. The opportunity set is broader than it has ever been. The conversation just needs to start.