Beyond 60/40: Private Assets in an Era of High Public Valuations

Credit markets are entering 2025 in a solid position. Although risks may appear one-sided given spreads are near multi-year tights, we expect the fundamental and technical backdrop to remain strong.

Key Takeaways

• Valuations in public markets remain at lofty levels. Persistent inflation could keep interest rates higher for longer.
• High valuations and an elevated rate environment, combined with other factors like strong correlations between stocks and bonds, could create challenges for investors with 60/40 portfolio allocations.
• Periods of high public equity valuations have historically represented attractive entry points to private markets. A balanced portfolio of alternatives has meaningfully outperformed following past periods of elevated public equity valuations and interest rates.
• Adding private markets to a 60/40 portfolio has historically enhanced returns while minimizing volatility, boosting returns per unit of risk across market cycles.