Private markets investments can be a powerful tool in helping investors create diversified portfolios and enhancing the traditional 60:40 stocks and bonds portfolio. They can improve outcomes and slightly reduce the volatility of a portfolio.
Unlisted investments for inflation protection
Unlisted investments for inflation protection
Private markets, which include unlisted investments in real estate, infrastructure, private credit and private equity can be accessed through a wide range of strategies, solutions and assets. These investments can enhance income streams and provide good inflation protection. Private markets also allow investors to have a direct sustainability impact in decarbonizing the economy, along with opportunities to make positive social impact too. As the European Long-Term Investment Fund (ELTIF), ELTIF 2.0 regulation update for alternative investment funds comes into force this January, the opportunities for investing in private markets may be opening to a wider audience.
Diversifying a portfolio for improved incomes
Diversifying a portfolio for improved incomes
Private markets investments can be a powerful tool in helping investors create diversified portfolios with higher return expectations and better risk-adjusted performance. Traditional portfolios have tended to be split 60:40 between stocks and bonds. As interest rates rose sharply in the wake of the pandemic, stocks and bonds showed increased volatility and higher correlations. Adding private markets investments can lead to improved outcomes and portfolios which are more resilient over the long term.
Risk adjusted performance of a portfolio
Risk adjusted performance of a portfolio
Historically, private markets investments have exhibited both higher returns and lower volatility than traditional public markets investments. This makes them attractive to investors who want to diversify their portfolios and use private markets to help reduce overall portfolio volatility. This is because private markets investments are not as strongly correlated with traditional asset classes as traditional assets classes are amongst themselves.
Global total returns and standard deviation
(13 years 2010 to 2022, local currency, % p.a.)
Total returns for portfolios which include private markets investments have historically been slightly higher than those which do not, which sometimes creates the perception of risk among investors. However, volatility as measured by standard deviation in returns has been slightly lower for portfolios which include private markets due to their lower correlations with the 60:40 portfolio
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