When There Is No Alternative: Optimal Allocation

Executive Summary

• Incorporating alternative (or “private”) asset classes in your asset allocation can be a challenging endeavor. But the potential enhancements these assets bring suggest that the extra effort is worthwhile.
• Is now the time for private assets? The secular macroeconomic and geopolitical backdrop suggests that investors may need to position for a different environment in the coming decades compared to the past. Plus, the evolution of capital markets over the past thirty years has shifted much of the demand for capital to private markets, offering lucrative reward potential to those willing to embrace illiquidity.
• Many of the most compelling opportunities in today’s market—and indeed, for much of the past few years—have been found in private markets.
• Despite sharing many of the same underlying economic exposures as their public counterparts, private equity and private debt markets offer a distinct profile when it comes to risk and reward potential. They are not just public assets in a different wrapper and cannot be treated as such in an asset allocation.
• Private markets add complexity when it comes to liquidity and cash management, but this can be navigated methodically. Most investors will find that the benefits of private assets outweigh the challenges.
• The advantages of private assets can be further amplified by structuring holdings in a taxefficient manner. Certain types of private assets, such as private credit, are most effective when held in specific structures.