With public asset volatility on the rise, savvy investors are looking for ways to smooth out their returns. One solution? Adding more alternative assets to their portfolios.
Private market exposure could be the key to steadier returns. By locking up capital for longer periods, fund managers have the opportunity to navigate market fluctuations and avoid knee-jerk reactions to market swings. According to a CIO analysis, incorporating private equity into a portfolio could reduce expected volatility by about 30 basis points annually over the long term.
The potential returns from private equity and debt are nothing to scoff at, with projections of around 11% and 9% per year, respectively, over a full business cycle. This outpaces many public stock and bond markets. As more companies choose to stay private, investors risk missing out on growth opportunities if they overlook private market investments.
For investors with a long-term outlook and the ability to withstand illiquidity, adding private market exposure could be a smart move. Opportunities abound in areas like middle market investments, secondaries, and thematic growth sectors like healthcare and software. While there are risks to consider, thorough due diligence and manager selection can help mitigate these potential pitfalls.
In today’s uncertain market environment, diversifying into private markets could be the ticket to smoother, more lucrative returns.
