(From the July 2025 Edition of eFORUM)

By Jay Bala

The 60/40 portfolio isn’t what it used to be. Today, bonds have lost some of their defensive edge, while equities remain vulnerable to shifting investor sentiment, policy changes, and global uncertainty — including rising tariffs and renewed trade tensions. In these volatile times, building a resilient portfolio means finding new ways to adapt and protect against unpredictable swings.

Complicating matters further, the traditional inverse relationship between stocks and bonds is breaking down. Since 2022, these asset classes have been moving in sync with a positive correlation — limiting the diversification benefits advisors have long relied on.

That’s why more advisors and investors are turning to alternatives, especially private credit, to add resilience and reliable income to portfolios. But allocating to alts isn’t just about picking an asset class — it’s about how it’s managed.

Building private market exposure into a portfolio

Private credit is having a moment, and for good reason. With floating rates that adjust to rising interest rates, shorter durations, and senior-secured positions that help manage risk, it’s built for the current economic climate. But the real draw? It delivers steady income and acts as a buffer against volatility, making it a smart way to diversify. For investors who want returns without the rollercoaster ride, private debt is an option that just makes sense — especially when accessed through funds that distribute earnings and offer principal protection with senior secured structures.

Private credit isn’t a silver bullet and it shouldn’t replace core equity or fixed-income exposure. However, as a complement to a traditional portfolio, it brings distinct advantages: low correlation to public markets, stable income, and a more predictable return path. These qualities contribute significantly to a resilient portfolio, able to weather the ups and downs of a turbulent market environment.

The key is right-sizing the allocation and matching it to each client’s needs, goals, and liquidity tolerance. Interestingly, while more than 40% of surveyed advisors recommend allocating 10% to 20% of portfolios to private markets — in line with family offices that often invest 20% or more — actual advisor allocations still average only 5% to 10%. That’s just half of what they themselves view as optimal.

Here’s a simple allocation framework to consider:

• 40% in equities: Given trade war uncertainty, and the fact that S&P 500 companies generate about 40% of their revenue outside the U.S., diversification beyond equities is crucial.
• 30% in fixed-income: Interest rate cuts, inflation, and market swings can erode bond performance — especially as bonds lose their traditional diversification role.
• 30% in alternatives: Private equity, debt, and real estate can offer income, diversification, and inflation protection. Depending on the client, I typically suggest alternatives in the 20% to 30% range. In times like these, products focused on principal protection, regular distributions, and transparency can provide meaningful ballast.

Outsourcing means not having to go it alone

Private credit and alternatives can add real value to your clients’ portfolios, but managing them effectively isn’t simple. From sourcing deals to underwriting risk, monitoring performance, and structuring investments — it all requires specialized expertise that most advisors just don’t have the time or resources to handle.

That’s why more advisors are partnering with professional managers. Outsourcing this part of the portfolio gives you access to teams with deep market knowledge, strong borrower relationships, and a disciplined approach to underwriting. These managers can build diversified portfolios with solid protections — the kind of rigor that’s tough to achieve without institutional resources.

The real benefit? It frees up your time. Instead of navigating a fragmented, opaque market, you can focus on what you do best: providing clients with strategic guidance and comprehensive planning. And that’s what many advisors are already doing. Over 80% now believe private market investments help attract new clients — reinforcing that managed alternatives aren’t just a risk tool, but also a growth lever.

Understanding the risks

As investors seek higher returns in a low-yield environment, private markets offer attractive opportunities, but with notable risks. Liquidity is a key concern, as private investments often lock up capital for years. Advisors must ensure these investments align with clients’ needs and timelines, balancing liquid assets for short-term needs with illiquid alternatives such as private credit or equity for long-term growth.

Additionally, private markets lack the transparency of public markets. With fewer regulations and limited access to information, it’s crucial for advisors to conduct thorough due diligence on both investments and managers. While private credit can provide diversification, understanding the risks — such as varying governance and oversight — is essential to making informed decisions and ensuring the best outcomes for clients.

This moment is forcing a rethink of what portfolio resilience really looks like. It’s not about chasing what’s hot. Rather, it’s about finding the right mix of income, stability, and thoughtful management. With trade wars, inflation, and interest rate uncertainty, building portfolios that can withstand shocks is more important than ever.

Jay Bala is co-founder, CEO, and senior portfolio manager at AIP Asset Management.