How private market investments can bolster 60/40 strategy

investmentnews.com:

The time-honoured 60/40 asset allocation debate is alive and kicking as we head for the turn of the year.

The portfolio strategy, which suffered its worst performance in 2022, is again up for review with more and more alternative products available. Steve Houston, head of enterprise solutions at iCapital, says the traditional approach works but like most things, it can work better.  

“It can work better by including less correlated asset classes and asset classes that investors traditionally didn’t have access to,” Houston says. “It’s not necessarily thinking about it like a 50/30/20. “If you stay with a 60/40 portfolio, and 60% is dedicated to equities, then private equity or venture capital or growth equity fit within that 60 bucket alongside public equities. It’s just less liquid. Likewise, private credit, or BDCs, or direct lending, is just a loan, it’s just like a bond and should fit neatly into the 40.” 

iCapital, an alternatives technology partner that offers support for advisors and their private clients to the private markets, has been a substantial player in the widely discussed “democratization of private equity” where institutional-style investment opportunities are opened up to retail investors.

Findings from a recent iCapital survey of 400 US registered advisors showcased how private market investments are being embraced by a new investor population. 95 percent of advisors surveyed by iCapital say they plan to allocate the same or more to alternative investments in the coming year. Currently, advisors who use alternatives allocate between 5-15% of client portfolios to alts.

Meanwhile, 50% of all advisors said client interest in alternative investments has increased over the past two years.

Houston says it’s