A practical framework for implementing allocations to private markets

Financial advisors increasingly understand the value of private markets—their long-term return potential, the potential for lower volatility, downside protection and the shrinking opportunity set in public equities.

Yet even advisors aligned with the private markets thesis often face a practical barrier: Implementation. Most work with hundreds of households and small teams, lacking the bandwidth to complete subscription documents or manage capital calls across accounts.

The result is an “implementation gap”: Advisors see the value but struggle to translate conviction into scalable action. This paper aims to close that gap with simple, practical frameworks for introducing private markets into portfolios.

An average of roughly 70 buyout single- or multi-asset continuation vehicle deals transacted annually between 2020 and 2025, nearly three times the average between 2015 and 2019. This growth reflects a strategic shift in how general partners (“GPs”) and limited partners (“LPs”) view continuation vehicles. What was once perceived as a lifeline for underperforming assets has become a proactive portfolio management tool, allowing sponsors to retain exposure to their trophy companies, secure additional fee-paying capital, build long-term relationships with new investors, and generate liquidity optionality for existing LPs.

From 60/40 to a modern portfolio

The traditional 60/40 construct has served investors well for nearly half a century, but today’s environment challenges its core assumptions. Public equity returns are increasingly driven by a narrow group of mega-cap companies, reducing diversification. The top 10 companies in the S&P 500 now represent 41% of the index’s market capitalization (Figure 1).

Transitioning away from 60/40 also has diversification benefits. Private equity exposure has historically returned positive figures over trailing five year periods relative to a 60/40 portfolio of equities and bonds. In other words, even during periods of market stress, a diversified portfolio of 60/40 had periods of low or negative returns. Private equity, however, experiences consistently higher returns over the same periods (Figure 2). Exposure to assets that have historically maintained a more consistent positive return profile can help diversify portfolios, thanks to both the lower volatility profile and lower correlation with public markets. This partial independence from public market fluctuations allows private equity to add stability to a portfolio and may reduce the impact of market downturns.

Public fixed income has experienced significant volatility thanks to rising and persistently high interest rates. Meanwhile, correlations between fixed income and equities have increased, reducing the diversification benefits investors on which investors once relied (Figure 3). In stress periods, therefore, both sides of the traditional 60/40 portfolio can decline simultaneously.

To further underscore this point:

• In 2022, the S&P 500 fell roughly -18% and the Bloomberg US Aggregate Bond Index declined about -13%.
• Over the same period, broad private equity indices posted low-single-digit returns or modest declines, according to SPI by StepStone.
• During the Covid-19 shock, public equities fell over -20%, whereas private markets generally saw far smaller interim markdowns.

Given the 60/40 framework’s dependency on two asset classes and heightened public market volatility, some investors may seek a more relevant approach for today’s markets. Before adjusting allocations, investors should first consider their investment objectives and the characteristics of each private market category.

Explore more from StepStone Private Wealth

Videos

In Conversation | Private Wealth Solutions: CRDEX

Firm news

StepStone Group partners with Utmost, unlocking private market diversification and growth potential for British savers

Market research

Magnificent 7 across markets: Comparing private and public company performance