In an era of persistent market volatility, wealth managers face rising challenges to deliver stable, attractive returns for clients.
Public markets are grappling with unpredictable correlations. Post-Covid, this was evidenced by the 2022 inflation spike, when equity-bond correlations rose significantly.
But more recent US-tariff-induced disruptions have firmly underlined the issue in 2025, where traditional diversifiers such as government bonds and currencies have faltered.
This raises the question: what levers can wealth managers pull to meet client objectives? Private markets may offer a compelling solution.
Private assets can empower wealth managers to navigate uncertainty. We see four key roles they can play for wealth managers. However, there are specific opportunities and practical considerations for those new to the asset class.
Navigating persistent market volatility
Global markets are experiencing heightened uncertainty, driven by tariff policies, sticky inflation and shifting equity-bond correlations.
The global economy is facing a ‘mini-Covid’ scenario. For example, container bookings from China to the US have plummeted by 60%, signalling supply chain disruptions that could precipitate a fresh economic shock.
Markets might ‘look through’ this, but data such as GDP forecasts point to a 60–75% recession probability if trade barriers persist. Traditional safe havens such as Treasuries are showing non-negligible volatility, undermining their reliability.
In this environment, wealth managers must consider alternative strategies to mitigate emerging risks and achieve client objectives.
Private markets, with their low correlation to public assets and potential for stable cash flows, provide a robust framework for portfolio diversification in light of this.
Key roles of private assets in wealth portfolios
Private assets can serve a critical function in wealth portfolios, addressing both risk and return in volatile times. There are four standout roles:
- Greater diversification
Nobel laureate Harry Markowitz was famously credited with saying that ‘diversification is the only free lunch in investing.’
Private assets, spanning private credit, private equity, real estate and infrastructure, offer exposure to distinct risk-return profiles that may smooth portfolio outcomes across varied market conditions.
Unlike public equities, which may move in lockstep during crises, private assets typically exhibit diverse performance patterns, reducing overall portfolio volatility.
No single private asset class consistently outperforms, underscoring the importance of diversifying to achieve smoother client outcomes.
- Enhanced returns for illiquidity
Private assets command a higher risk premium for their illiquidity, compensating investors for tying up capital over extended periods.
This illiquidity risk premium can significantly boost returns, provided managers select high-quality opportunities. For instance, private credit offers yields of 10–11% in some segments, far surpassing public market equivalents.
Not all risks are completely compensated for, but improved compensation is most certainly required to match a higher risk and/or illiquidity profile.
- Manager alpha through complexity
The complexity of private markets creates opportunities for managers to generate alpha through information asymmetry.
Unlike public markets, where data is widely available, private markets reward managers who can identify and exploit unique insights.
However, this potential comes with a caveat: manager selection is paramount, as performance dispersion between top- and bottom-quartile managers is significantly wider than in public markets.
- Access to the growing private economy.
An increasing range of the global economy - from airports to toll roads, fintech startups and other investments - are held in private hands.
Private markets grant wealth managers access to these opportunities, which are typically unavailable in public markets. This trend is accelerating as fewer companies go public, particularly in the UK and other developed markets.
By investing in private assets, wealth managers can tap into high-growth sectors unavailable to public markets, giving further opportunity for alternative portfolio returns and diversification.
The opportunity set for wealth managers
Private markets present a significant, growing opportunity for wealth managers, particularly in private credit.
Private credit, encompassing asset classes like direct lending, asset-based finance (ABF), private credit secondaries and opportunistic illiquid credit, can offer lower risk and customisable income profiles compared to other asset classes.
Direct lending is the dominant segment. It has grown as banks retreated from riskier lending post-financial crisis, transferring the return potential to private investors.
ABF and secondaries are also gaining traction, offering higher returns for similar illiquidity.
Considerations for first-time allocators
For wealth managers new to private markets, private credit is an accessible entry point due to its lower risk-return profile.
Starting with private credit allows wealth managers to build familiarity with private markets while delivering attractive risk-adjusted returns.
However, several considerations are critical:
- Liquidity needs: Clients must assess how much of their portfolio can be illiquid. Private assets often require capital lockups of several years, necessitating a balance with liquid holdings.
- Manager selection: The wide dispersion in manager performance demands rigorous due diligence.
- Costs and complexity: Higher management fees and operational complexity require careful fee negotiations to ensure returns accrue to investors.
- Data challenges: Limited public data in private markets introduces biases, requiring robust data sources and analysis.
- Access: Retail platforms often limit access to private assets.
Beyond this, it is critical to ensure the process of selecting investments is carefully managed to ensure the best outcomes possible for clients.
This comes with ensuring deep expertise in private market allocations in order to identify top-quartile managers and high-potential opportunities and ensuring clients capture alpha.
It necessitates a sophisticated approach to portfolio construction to integrate private assets seamlessly and balance liquidity, risk and return.
Our own experience in this suggests leveraging proprietary data and maintaining critical industry partnerships to overcome access and data challenges is key.
So what?
Private markets offer wealth managers a powerful lever to navigate ongoing volatility, delivering diversification, enhanced returns, manager alpha and access to unique opportunities.
Private credit, with its lower risk and customisable profiles, is an ideal starting point for first-time allocators. However, success requires careful consideration of liquidity, manager selection, costs and data challenges.
With the right expertise, wealth managers can confidently integrate private assets, enhancing client outcomes in an unpredictable world.
Dipan Roy is head of portfolio construction at Redington. The views expressed above should not be taken as investment advice.