Advisors choose diversification as top benefit in private market investing

A new survey by Blackstone’s Private Wealth Solutions group offers a meaningful glimpse into how financial advisors are allocating client assets to private markets.

According to the advisor pulse survey published Tuesday, which included responses from over 450 financial advisors at Blackstone University, highlighted a strong inclination towards incorporating private market investments into client portfolios.

Nearly 90 percent of the surveyed advisors said they have already allocated a portion of their clients' portfolios to private markets, including more than 70 percent who said they’ve allocated five percent or more.

That shift mirrors the practices of sophisticated investors such as endowments and family offices, which allocate over 50 percent and 20 percent of their portfolios to private markets, respectively, according to a UBS Family Office report cited by Blackstone.

The survey results indicate portfolio diversification as a primary benefit of investing in private market assets for the first time, as noted by 71 percent of the advisors.

“For clients seeking portfolio diversification, private markets can serve as a core component of their investment strategy,” Blackstone said, highlighting the increased appeal of diversifying as economic conditions evolve and the performance correlation between stocks and bonds grows.

Other benefits of private market investments highlighted by the advisors included lower volatility (13 percent), higher returns (11 percent), and increased income generation (5 percent). When looking ahead to the next 12 months, many advisors expect to increase allocations to private equity, where returns have slumped according to Raymond James.

Choosing the right private market manager is crucial, and 47 percent of surveyed advisors cited the manager’s track record as the most important factor. This emphasis on past performance is non-trivial, Blackstone said, due to the wide disparity among private market managers compared to public market managers.

“For example, the gap between top quartile and bottom quartile manager returns in private real estate averaged 11.5 percent a year over the past five years, compared to 1.3 percent in public real estate,” Blackstone noted.

Beyond manager performance, 26 percent of advisors in the survey said they consider the right risk-return profile essential when selecting a manager, while 13 percent prioritize examining the underlying investments.