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I am frequently asked why we do not include private market investments such as private equity, private credit, or privately held infrastructure in our traditional wealth management solutions—even though we regularly highlight the advantages of these asset classes. As part of our advisory process, we assign investors to one of six risk profiles according to their individual risk capacity. This profile determines the allocation between higher-risk assets such as equities and lower-risk investments such as high-quality bonds within the framework of strategic asset allocation. For a medium, so-called “balanced” risk profile, for example, we hold 50 percent globally diversified equities. To achieve diversification, the remaining portions are allocated to 33 percent bonds, 12 percent hedge funds, and 5 percent liquidity.

The main reason why we do not include private market investments in the strategic asset allocation of our traditional wealth management solutions is liquidity: Private market investments are generally illiquid—the investment process typically takes several years to build up, and exiting is not possible in the short term. This contradicts the requirement that a wealth management mandate should be investable and liquidatable at any time.

We therefore prefer to maintain a well-diversified and liquid “core portfolio,” and complement it selectively with private market investments in a separate vehicle. Various types of private market investments can be utilized, ranging from fund-of-funds solutions to investments in individual private equity managers focused on specific sectors or themes. Those who wish to invest systematically and with larger volumes in private equity can do so with a “road map,” which is a strategic plan designed over several years for the gradual development of a self-sustaining PE portfolio.

For larger investment volumes, where it is possible to consciously forgo a portion of liquidity, customized portfolios are available that are based on our strategic asset allocation in the “Endowment Style.” This model is inspired by the asset allocation of successful American endowments: In addition to the usual liquid asset classes (5 percent liquidity, 20 percent bonds, 35 percent equities), 40 percent is invested in alternative assets—comprising 15 percent private equity, 8 percent private credit, 4 percent each in infrastructure and real estate, and 10 percent hedge funds.

Regardless of the chosen investment approach, private market investments—with their advantages such as lower volatility and attractive diversification characteristics—can complement a traditional portfolio of publicly traded investments.

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