As traditional 60/40 portfolios struggle in an era of persistent inflation and market volatility, institutional and private investors are turning to alternative assets as an additional source of returns and diversification. Jerry Pascucci and Johannes Roth examine the drivers and implications of this structural shift.
For decades, alternative investments have been skewed towards institutional investors with nine-figure minimums and substantial in-house due-diligence capabilities. That world has gone.
Today, as traditional investment strategies buckle under pressure from persistent inflation, elevated interest rates, and geopolitical uncertainty, a significant shift is reshaping investing. Portfolio construction conventions are also being challenged with the 60/40 split between stocks and bonds coming under scrutiny. Investors want uncorrelated returns, as well as shelter from unpredictable financial markets.
Many sophisticated private investors increasingly want to allocate capital the same way as pension funds. The transformation began quietly in the aftermath of the 2008 financial crisis. As central banks flooded markets with liquidity and drove interest rates to historic lows, institutional investors found themselves forced to venture beyond traditional asset classes in search of yield. Private markets began attracting unprecedented capital flows.
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