Most investors treat volatility as a flashing warning light. Ares' Quantitative Research Group, in a new paper, Navigating Uncertainty: Does Volatility Create Better Vintages?1, argues that this instinct, however natural, may be quietly expensive. "Most investors are trained to treat volatility as a warning sign," the firm writes. "In private markets, that instinct may come at a cost."
The timing of the question is no accident. With 2026 marked by "concerns about inflated valuations, macroeconomic risk, geopolitical conflict, and the possibility of an AI-driven market bubble," uncertainty has moved back to the center of asset-allocation decisions. The practical question, Ares notes, "is not whether investors feel more cautious. It is whether that caution should lead them to commit less capital." The firm's answer is unambiguous: it should not.
The Test: Three Strategies, Two Decades
The analysis builds on Kaplan and Schoar's 2005 finding that funds raised in crowded fundraising periods tend to underperform, and on Ares' own 2023 commitment-timing research. This paper flips the lens, testing "whether elevated volatility at entry can serve as a forward-looking signal for stronger private-market fund performance."
The methodology is disciplined. Using the prior year-end VIX level ranked against a rolling 10-year percentile, Ares constructs three commitment strategies for vintages from 2000 through 2020: a fixed strategy committing $100 annually, a pro-volatility strategy scaling commitments up to $200 when volatility is elevated, and an anti-volatility strategy doing the reverse. Critically, the approach "uses only information that would have been available to investors at the time of commitment." No hindsight, no data mining.
The Results: Consistent Across Assets and Geographies
The findings are striking in their consistency. As Figure 3 shows, the pro-volatility strategy delivers a capital-weighted Net IRR of 13.3%, versus 12.2% for the fixed approach and 11.1% for the anti-volatility approach. TVPI follows suit at 1.69x, 1.65x, and 1.61x respectively. Alpha relative to public markets nearly triples across the spectrum, from 1.26% for the volatility-avoiders to 2.94% for those who lean in.
The pattern holds across asset classes. Private Real Estate shows the largest spread, with pro-volatility beating anti-volatility by 4.3 percentage points of Net IRR. Buyout posts a 3.2-point spread. Private Credit, at 3.3 points, may be the most revealing case: Ares' 2023 work found fundraising cycles "offered only a modest edge in the asset class. Volatility appears to have been a more powerful signal." Infrastructure is "the exception in degree, though not in direction," a relative stability that may make it "more useful as a defensive allocation during uncertain periods."
Regionally, the story repeats. Europe shows the widest pro-versus-anti spread at more than 5 percentage points of Net IRR, with North America and Asia Pacific at roughly 2.6 and 3.3 points.
Does Leaning In Add Risk? Barely.
Perhaps the paper's most consequential finding concerns risk. Across 10,000 simulated portfolios, smaller portfolios leaning into volatility still outperformed by 1.1 percentage points of Net IRR, while adding only "0.1 – 0.2 percentage points of standard deviation." Notably, "avoiding volatility drives a similar increase in risk." The conclusion is blunt: "avoiding volatility does not make portfolios safer—it simply lowers returns while demonstrating no meaningful risk relief."
To be fair, Ares does not present this as a free lunch. Volatile periods "often coincide with public-market drawdowns, liquidity constraints, and pressure on portfolio allocations," and over-allocating to a single vintage carries its own dangers. The intuition behind the result, though, is sound: volatile periods "often bring lower entry multiples, reduced competition for assets, and greater discipline around underwriting and operations."
The bottom line, in Ares' words: "For those with long-term capital, sufficient liquidity, and disciplined pacing, volatility may be less a reason to retreat than a reason to stay active."
Five Key Takeaways for Advisors and Investors
- Volatility is a signal, not just a risk. Higher-volatility vintage years have historically produced stronger Net IRR, TVPI, and Alpha across private capital from 2000 to 2020.
- The effect is broad-based. The pro-volatility advantage held across Buyout, Private Credit, Real Estate, and Infrastructure, and across North America, Europe, and Asia Pacific.
- Private Credit responds more to volatility than to fundraising cycles. For this asset class, volatility is the more powerful timing signal.
- Avoiding volatility does not reduce risk. Both leaning in and pulling back added similar, modest standard deviation. Only one of them added return.
- Pacing discipline still matters. The findings support staying committed through uncertainty, not concentrating capital in any single vintage.
Footnote:
1 Ares Quantitative Research Group. "Navigating Uncertainty: Does Volatility Create Better Vintages?" Ares Management, 2026, https://www.ares.com/ca/news-and-insights/perspectives/navigating-uncertainty-does-volatility-create-better-vintages.
