Can you successfully combine private and public in multi-asset?
We delve into whether the benefits of combining public and private assets into a single multi-asset portfolio outweigh the risks.
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The arguments for expanding an investment portfolio into private assets are well known. It can improve diversification. It can allow access to potentially high returning opportunities. It can even offer an additional skill or ‘complexity premium’ from the most skilled managers (particularly for those with a superior deal sourcing network).
Combining public and private assets into a single external multi-asset portfolio is gathering momentum amongst institutional investors, particularly for those who haven’t invested in private assets yet. Even so, the liquidity challenges of private assets are still there. Here, we lay out the benefits of combined public-private portfolios, and weigh them against the risks.
Rising, accelerating interest
Quantifying asset flows into blended public-private investment mandates is difficult. There is, however, clear evidence to demonstrate rising interest among institutions and insurance companies.
Our 2021 Global Institutional Investor Survey, incorporating the views of 750 institutional respondents, confirmed this growing appetite with 47% of investors looking to diversify into alternatives and private markets, up from just 26% in 2020.
Furthermore, 42% of investors are increasing their use of private assets to ‘manage risk within the portfolio’, with asset class diversification the single most important strategy for risk management.
The largest institutions continue to want to add to their private assets, as has been a trend for over a decade. However, some that haven’t done it yet are looking to offer single mandates to skilled managers who can manage both public and private in one portfolio.
What are the advantages of combining public and private assets into one portfolio?
In our experience there are four key reasons for asking a portfolio manager to manage a combined portfolio across multiple asset classes:
- Single point of governance;
- Improved management of committed cash and disbursements;
- Management of the public portion of the portfolio while cognisant of the private portion;
- Consistent measurement of overall portfolio risk, sustainability profile and impact.
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