The landscape of wealth management is undergoing a profound shift. As traditional 60/40 portfolios come under scrutiny and investors seek more resilient strategies, alternative investments—specifically private markets—are increasingly taking center stage. In a compelling conversation, Tony Davidow.1 Senior Alternatives Investment Strategist at Franklin Templeton Institute, articulates why private equity, private credit, and private real estate are essential tools in modern portfolio construction.
The New Investing Paradigm
“The easy money was made during that extended bull market run,” Davidow noted. But 2022 served as a wake-up call, when both stocks and bonds were down double digits. “That moment shattered the illusion that traditional assets always provide reliable diversification,” he explains. The classic assumption that bonds act as a stabilizing force against equity market volatility no longer holds, at least not consistently. “Every time there’s a shock to the market, traditional investments tend to move in lockstep with one another.”
This breakdown in correlation has led institutional investors to seek out more robust solutions, leveraging private market investments to mitigate drawdowns and enhance returns. And now, for the first time, individual investors have meaningful access to these same strategies.
The Institutional Approach: Lessons from Yale
Davidow has been a long-time advocate for institutional-style investing, and much of his philosophy is rooted in the pioneering work of David Swensen, the late Yale endowment CIO. “Swensen famously allocated 70-80% of Yale’s portfolio to alternative investments,” Davidow says. The results were extraordinary, as the Yale model outperformed traditional portfolios over decades.
Historically, private markets were the domain of institutions, pension funds, and ultra-high-net-worth family offices. But “the accessibility of private market investments has widened dramatically,” Davidow observes. New product structures—like evergreen funds, interval funds, and tender offer funds—are making private markets available to a broader investor base, eliminating many of the hurdles that once kept them out of reach.
The Roadblocks: Overcoming Misinformation and Misconceptions
Despite the democratization of alternatives, adoption among advisors has been slow. Davidow identifies three primary obstacles:
- Understanding the Strategies – Advisors need to grasp the fundamentals of private markets, including their role in a portfolio.
- Structural Trade-offs – Private market assets are inherently illiquid, a feature that many investors mistakenly view as a drawback rather than an advantage.
- Client Education – Advisors must be equipped to explain the benefits and trade-offs of private markets to their clients in a way that resonates.
“When clients don’t understand something, it sounds risky,” Davidow emphasizes. “We need to move past the language barriers and focus on the purpose these investments serve.”
Private Markets: A Vast and Growing Opportunity
The sheer size of the private market opportunity is staggering. “Almost 90% of companies with $100 million or more in revenue are private,” Davidow reveals. That’s 87% of U.S. businesses—a massive, largely untapped universe for investors. Meanwhile, the public markets are shrinking, with the number of publicly traded companies in the U.S. dropping from 8,000 to around 4,000 over the past two decades.
“If you’re only investing in public markets, you’re missing out on a massive opportunity set,” Davidow warns. Investors frequently lament not having been early investors in companies like Amazon or Google before their IPOs. “Well, that’s exactly what private markets provide—a way to invest in those high-growth companies before they hit the public exchanges.”
The Illiquidity Premium: A Feature, Not a Bug
One of the most persistent concerns surrounding private markets is illiquidity. But Davidow flips the script: “Illiquidity isn’t a problem—it’s an advantage.” Private market investments command an illiquidity premium, historically delivering 300 to 500 basis points of excess return over public market equivalents.
“If you define in advance the role that each investment plays in your portfolio, illiquidity becomes a non-issue,” Davidow explains. “Institutions like Yale treat a portion of their assets as ‘patient capital.’ Why shouldn’t individual investors do the same?”
The cost of being too liquid, as Davidow describes it, can be severe. Investors who panic and liquidate during downturns often lock in losses. By designating a portion of their portfolio to private markets—say 10-20%—investors enforce discipline and gain exposure to assets that perform differently from publicly traded stocks and bonds.
Secondaries: A High-Conviction Play
Among private market strategies, Davidow is particularly bullish on secondaries—transactions where investors buy and sell stakes in existing private equity funds. “The secondary market has evolved from a niche space into a vital cog in the private equity ecosystem,” he says.
Why do secondaries matter? Institutional investors often need to rebalance, leading them to sell stakes in private equity funds at a discount. “For investors, that’s an opportunity to buy seasoned private equity positions with built-in diversification at an attractive price.”
The Future of Alternatives in Wealth Management
Davidow believes the shift toward private markets is still in its early stages. “We’re probably in the third or fourth inning,” he suggests. More products will emerge, and allocations will likely rise toward 20% or more of high-net-worth portfolios.
“For advisors, private markets are becoming table stakes,” he asserts. “If you’re not discussing them with your affluent clients, someone else will.”
Looking ahead, the continued growth of the private market ecosystem will provide even more opportunities for investors willing to embrace this new paradigm. “This is about building better portfolios—and ensuring that clients achieve their long-term goals,” Davidow concludes.
Final Thoughts
Private markets offer a powerful solution to the limitations of traditional portfolios. With access widening and product structures evolving, advisors and investors who embrace this shift will be best positioned to navigate the next era of wealth management. The conversation is no longer why alternatives, but how to integrate them effectively.
Footnote:
1 "Rethinking Wealth: Unlocking the Power of Private Markets with Tony Davidow." AdvisorAnalyst, 18 Mar. 2025, advisoranalyst.com/2024/12/10/rethinking-wealth-unlocking-the-power-of-private-markets-with-tony-davidow.html.
