- The shift to an inflationary backdrop challenges multi-asset portfolios – undermining traditional diversification as equity–bond correlations become less reliable.
- Private markets can play a role in mitigating inflationary risk in multi-asset portfolios.
- A selective, diversified approach to high-quality assets is key to building resilience across inflation regimes.
For decades, the 60/40 portfolio has been a central pillar of multi-asset investing. Its effectiveness is grounded in a simple but powerful relationship: equities driving growth, and bonds providing a counterbalance through diversification. A uniquely supportive environment through the 1990s and 2000s – defined by stable growth, anchored inflation and predictable central bank policy – meant the two often moved in opposite directions, smoothing returns and reinforcing the case for traditional diversification.
That environment has now shifted. Greater economic volatility – particularly in inflation – is weakening the reliability of this relationship, and with it, some of the assumptions that have underpinned multi-asset portfolios for a generation. At the same time, the opportunity set is evolving. An increasing proportion of economic activity now sits outside public markets, as companies stay private for longer and value creation shifts earlier in the lifecycle.
This makes a compelling investment case. We believe private markets can play a structural role within multi-asset portfolios – not only for diversification and inflation resilience, but for accessing sources of growth and return that are becoming less visible in listed markets.
https://www.mandg.com/adviser/about/expertise/lighthouse/inflation-case-for-private-markets