We believe the role of private assets is increasingly seen as mission-critical, calling for a new, more comprehensive approach to investment strategy—one that looks beyond asset-class silos and emphasises potential outcomes.
Such an approach is made possible by a private-market opportunity set that is broader and deeper—but also more competitive—than it was a decade ago.
As of May 2016, pricing across large private asset classes has been stretched, at least in most developed markets. Our current focus is on specialised opportunity sets within each asset class, and we identify examples in private equity, private credit, and real assets.
We then switch the perspective from asset class to desired outcome, using illustrative portfolios to help show how this approach can help unlock the full potential of private assets.
Managing risk, and potential over–concentrations, is a key concern in building private asset portfolios. Investors can take proactive steps to seek better diversification and/or hedge, but there’s no denying that it’s a resource-intensive endeavor.
An increasingly critical role
Increasing potential impact of alternatives allocations on global pension portfolios
Source: BlackRock, 31 May 2016. Private asset performance, from Preqin (01/01/1996 to 31/12/2015), includes all major closed-end fund types, including buyout, venture capital, real estate, infrastructure, distressed private equity, mezzanine, natural resources, and growth. Allocation data is from Willis Towers Watson Annual Global Pension Assets Study as at 2 February 2016. Traditional asset performance is that of mutual funds tracked by Morningstar’s global database, inclusive of all sectors (01/01/1996 to 31/12/2015). Public market dispersion represents average of lagging 3-year performance. Alternatives uses 2013 as latest meaningful vintage performance.
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