Essentials of Allocating to Private Assets
Private markets can be used to pursue a range of potential benefits in investor portfolios.
Introduction To Allocating to Private Assets
What You Need to Know About Private Assets
1: Allocating to Build Wealth
Asset allocation is the art of matching clients’ goals to specific mixes of investments. Private markets can be an important part of these efforts, but individual investor allocations historically have been small. That is now changing.
2: The Case for Private Markets
Private assets historically have generated attractive risk-adjusted returns compared to public markets across cycles. They have long been used by family offices, endowments, and other sophisticated investors for objectives such as capital appreciation, income generation, diversification, and inflation mitigation
3: Illustrative Allocations
Private assets can work across a range of risk profiles, but the desired allocation depends on the client’s specific objectives and circumstances. Disentangling the topics of risk tolerance and liquidity needs is key to sizing the allocation and unlocking these assets’ potential.
WHY ALLOCATE TO PRIVATE ASSETS
Larger private markets allocations historically have driven higher returns
Building resilient portfolios requires investors to look beyond traditional public markets. As institutional investors have demonstrated over multiple decades, private market investments can provide access to opportunities that are often unavailable through listed securities, supporting long-term capital appreciation and differentiated sources of return.
Economic conditions continue to evolve, with higher financing costs, inflationary pressures, and increased market uncertainty reshaping investment strategies. We believe that a diversified allocation to private markets—including private equity, infrastructure, real estate, and private credit—can strengthen portfolio resilience through active management, broader diversification, and exposure to long-term value creation opportunities, while requiring investors to accept longer investment horizons and reduced liquidity.
Private growth portfolio delivered ~2x public market returns over last
20 years
HISTORICAL OUTPERFORMANCE COMPARED TO PUBLIC ASSETS
A defining characteristic of private market investing is its ability to unlock value beyond what is typically available in public markets. Through active governance, operational transformation, and long-term strategic planning, private investments seek to generate returns that extend beyond traditional market performance.
Historical market data suggests that diversified private market strategies have frequently delivered superior long-term performance relative to broadly comparable public asset portfolios. This performance has been supported by value creation initiatives, disciplined capital allocation, and the flexibility to execute long-term business strategies without the short-term pressures often associated with public markets.
NOTE: The information presented is for illustrative purposes only and may include hypothetical examples in the picture. Past performance is not a reliable indicator of future results, and no representation is made that any investment will achieve similar performance. All investments involve risk, including the possible loss of principal.
Allocating to Private Markets
A successful private market allocation is built on four key principles:
- Long-term commitment to capture value creation over multiple market cycles.
- Portfolio alignment with individual investment objectives and risk tolerance.
- Manager selection, recognizing that investment outcomes often depend on the quality and experience of the investment team.
- Strategic diversification across complementary private market sectors and asset classes.
Core Attributes of Private Assets
Private markets provide investors with access to multiple sources of long-term value creation beyond traditional public investments. By combining different alternative asset classes, investors can pursue growth, income, diversification, and portfolio stability across changing market conditions.
Private equity seeks to create value through active ownership and business transformation, private credit offers predictable income opportunities, and investments in real estate and infrastructure can generate both recurring cash flow and long-term appreciation while providing exposure to essential sectors of the economy.
Selecting Assets and Sizing Allocations
Private assets can be included in an investment portfolio with different levels of risk depending on an investor’s goals and financial situation. The right allocation will depend on several factors, including how much risk the investor is comfortable taking, their investment timeframe, and how much of their total portfolio they want to invest in private markets.
It is important to understand that risk tolerance and liquidity needs are not the same thing. Risk tolerance refers to how much uncertainty or potential loss an investor is willing to accept, while liquidity needs refer to how quickly they may need access to their money. Confusing these two factors can lead to poor investment decisions.
A larger allocation to private assets does not always mean a portfolio has more risk. In some cases, private investments can help diversify a portfolio, provide access to unique opportunities, and potentially improve long-term returns.
With these considerations in mind, the following examples show how different private asset allocation strategies can be applied based on different investor goals and circumstances.
Income Portfolio
An income portfolio can be designed with private assets to pursue higher distributions. This portfolio would emphasize private credit, real assets, such as private real estate and infrastructure, and some private equity, in addition to allocation to public equity and fixed income. Allocations like this could outperform a portfolio of stocks and bonds over the past two decades and deliver higher income.
Note: Past performance does not guarantee future results. The returns shown are hypothetical and for illustrative purposes only; they do not represent the actual performance of any Blackstone portfolio or investment strategy. Future market conditions, funds, and managers may perform differently.
The portfolio examples are based on historical data from September 30, 2004 to September 30, 2024 and use selected public and private market benchmarks to illustrate potential outcomes. The allocations, indices, and assumptions shown are not recommendations or predictions of future performance. Actual investor results may vary depending on market conditions, fees, investment choices, and other factors.
Growth Portfolio
A second example – a portfolio built for growth would pursue greater capital appreciation over time. This type of portfolio would favor private equity, but also include allocations to the other three just-mentioned private asset classes.
Here, also, this style of allocation could outperform public
markets over the last 20 years.
Note: Past performance does not guarantee future results. The returns shown are hypothetical and for illustrative purposes only; they do not represent the actual performance of any Blackstone portfolio or investment strategy. Future market conditions, funds, and managers may perform differently.
The portfolio examples are based on historical data from September 30, 2004 to September 30, 2024 and use selected public and private market benchmarks to illustrate potential outcomes. The allocations, indices, and assumptions shown are not recommendations or predictions of future performance. Actual investor results may vary depending on market conditions, fees, investment choices, and other factors.
Considerations Before Allocating
Private market investing means active ownership of less liquid assets, as value creation takes time. Liquidity needs at the total portfolio level are one important consideration before allocating to private equity. In addition, manager selection may be of particular importance given the wider dispersion of returns compared to public markets. Key manager attributes include scale, staying power and a long track record.
Frequently asked questions
Why allocate to private assets?
Eligible individual investors may allocate to private assets to diversify portfolios beyond traditional public stocks and bonds and gain exposure to a larger opportunity set and different return drivers. Private assets can offer potential benefits such as long‑term growth, income generation, potential inflation mitigation, and access to investments not available in public markets, which may complement a diversified investment strategy.
What are the advantages of a portfolio with private assets vs. the traditional 60/40 portfolio?
A portfolio that includes private assets may offer broader diversification than a traditional 60/40 stock‑and‑bond portfolio by incorporating investments with different liquidity profiles, cash flow characteristics, and economic sensitivities. Private assets can help reduce reliance on public market performance alone and may enhance long‑term risk‑adjusted returns through exposure to additional sources of income and growth.
How to build a growth portfolio with private assets?
A growth‑oriented portfolio with private assets typically emphasizes strategies focused on capital appreciation, such as private equity, venture capital, and growth‑focused real estate or infrastructure investments. These assets are often selected to complement public equities by targeting long‑term value creation through business expansion, innovation, and operational improvement.
How to build an income portfolio with private assets?
An income‑focused portfolio with private assets typically emphasizes strategies designed to generate regular cash flows, such as private credit, income‑oriented private real estate, and core infrastructure investments. These assets may offer contractual or asset‑based cash flow streams that can help support consistent income while diversifying sources of yield beyond traditional fixed income investments.