This study presents a practical framework for sizing private asset allocations and planning capital commitments from the perspective of a Multi-Asset allocator. In today’s evolving investment landscape, private assets have become a crucial element of institutional portfolios, offering distinct advantages such as enhanced diversification, the potential for higher risk-adjusted returns, and lower correlation with traditional public markets. However, integrating illiquid investments into multi-asset portfolios introduces a set of unique challenges that CIOs must navigate carefully.
Effective private asset integration requires a deep understanding of their inherent characteristics, such as extended investment horizons, complex cash flow dynamics, and valuation nuances, and how these characteristics impact portfolio construction and risk management. Central to this process is the need for disciplined strategic asset allocation that aligns private assets with broader portfolio objectives, liquidity constraints, and risk tolerance. Importantly, the traditional separation between strategic planning and implementation should be bridged, as commitment pacing and capital deployment decisions and constraints not only directly influence portfolio outcomes and liquidity profiles, but could alter the risk profile and should be consider in the strategic planning.
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