Is 60:40 fit for purpose in a private assets world?
The 60:40 model is no longer fit for purpose, but private assets can help save portfolios from market turmoil, writes Brendan Gow.
The recent volatility in global public markets — both on the ASX and Wall Street — has forced investors and wealth managers alike to reconsider the foundations of sound portfolio construction. The traditional 60:40 portfolio split between equities and bonds may no longer provide the protection or performance it once did.
Many advisers may be nervous about reorientating portfolios from this tried-and-tested formula. Upweighting portfolios to include higher volumes of private assets might feel unnatural, particularly when respected figures such as Macquarie’s Viktor Shvets warn that the private market could face a ‘Lehman Brothers moment’.
However, the innate volatility of private markets does not mean inevitable collapse. When used appropriately in a portfolio, with real visibility and control over the asset, private assets add resilience.
The problem for many advisers, and particularly their clients, is that they will be held back by fee structures, and their own mindsets, which prevent them from making the necessary changes.
The case for private assets amongst public turbulence
Globally, equities are experiencing a long-overdue correction, but that doesn’t mean to say that there aren’t spikes to take advantage of. The ASX has surged recently, as global investors pile into our exchange as a ‘safe haven’ from Trump’s tariff war, pushing stocks like CBA to record highs.
However, beneath the surface, the rally masks significant structural risks. At the recent Macquarie Australia Conference, a wave of earnings downgrades looms for ASX-listed companies, while globally, tech giants such as Apple and Amazon have also reported disappointing earnings, underscoring the fragility of current valuations. All of this activity is summed up as “fast money” according to Wilsons Advisory’s head of investment strategy, David Cassidy.
This volatility is not confined to equities. Bond and currency markets are equally unsettled, with the benchmark US 10-year Treasury yield stuck near 4.5 per cent — up from just under 4 per cent a fortnight ago. Foreign investors, who own a third of US Treasuries and nearly a fifth of US stocks, are increasingly wary, as the implicit global deal — ‘America buys, the world finances’ — shows signs of fracturing.
In this environment, the case for increasing allocations to private assets — private equity, private credit, and alternatives — has never been stronger. Private assets are not directly correlated to public markets, so they tend to offer more stable returns, especially during periods of heightened volatility and market corrections. Capital Haus has reduced its equity holdings to 30-40 per cent and diversified into private markets, resultantly we have been better shielded from recent public market selloffs.
Why many advisers could resist change
Despite these advantages, many large firms are slow to reduce their equity exposure. The financial incentives of managing listed equities — where fees are often tied to trading activity — can discourage nimble asset allocation. But for clients seeking true protection and growth, a more dynamic approach is essential. Private capital and alternatives should now be a cornerstone of a forward-looking portfolio, with managers seeking both diversification and high-return opportunities through direct deals and trusted funds.
Advisers, especially equity advisers, needs to change their thinking. Their clients don't come to them for stock picking and execution, they want real advice and direction on portfolio construction, and their fee structures should reflect this. Fees should be based on service rather than transactions.
Despite the opacity, private markets need to be given serious consideration in a modern portfolio. Macquarie’s Shvets has highlighted valid concerns about hidden leverage and the risk of delayed pricing in private markets. While these risks are real, they are not insurmountable.
The key lies in how these assets are accessed and managed. Careful selection, transparency, and active oversight will ensure that private assets are not just a diversification tool, but a source of resilience and real opportunity.
New thinking, particularly on the structure of private credit deals, will gradually become more widespread. As an example, we’ve invested significantly in building out our research, due diligence and corporate advisory functions.
We often embed a Capital Haus adviser into the asset company’s governance framework. This may be in the form of board involvement or covenant-level monitoring, enabling us to actively manage risks rather than allocate and hope. While most advisers won’t be able to execute their own deals, it’s just an example of how private credit best practice is still being written.
What does the future of portfolio construction look like?
Forecasts suggest that the ASX 200 will struggle to meet earnings expectations, and with many stocks still trading at stretched valuations, it may be some time before our portfolios are re-weighted towards public assets. While it’s impossible to call the bottom, history suggests that public equities become attractive again when valuations reset, risk premiums widen, and visibility on earnings stabilises.
The turbulence we’re witnessing is not an anomaly — it’s a feature of the new world order. Rather than fear volatility, we should see it as a test of portfolio resilience and management discipline. Private assets are not invincible, but when used judiciously — alongside liquid assets and with genuine oversight — they add meaningful strength to any portfolio.
The 60:40 portfolio is no longer fit for purpose, and advisers need to change their mindset, and fee structures, to ensure they can provide the best opportunities for their clients. New thinking on private capital, and a new approach to private credit in particular, is an important foundation for this.
Brendan Gow is the founder and CEO of Capital Haus, and executive chairman of Equity Story.
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