Can Private Markets Be the Alternative to Lofty Public Market Valuations?

High public market valuations pose a key question for allocation adjustments in 2025: What can one do to enhance potential returns, improve diversification, and mitigate volatility? 

 Key Takeaways

• Public markets are expensive and concentrated: Both public stocks and bonds are trading at elevated valuations, offering low risk premia. In equities, performance is increasingly reliant on a small group of mega-cap stocks, amplifying portfolio risks.

• Diversification is harder to achieve: The rising correlation between public stocks and bonds has practically eroded the diversification benefits of the traditional 60/40 portfolio, leaving investors more exposed to systemic risks.

• Private markets can enhance portfolio resilience: Private markets can offer access to differentiated return drivers, lower correlations with public markets, and opportunities to improve risk-adjusted return potential, which we believe make them a valuable component of a broader portfolio strategy, especially in light of high public market valuations.