Name: Allocation Evolution: Why Alternatives are Essential in a Post-60/40 Era
Uploaded: 2025-10-10T13:34:00Z
Duration: 6 min 40 s
Description: Private markets are becoming more commonplace, with a lot of attractive opportunities. Hear what areas in the alternative space can provide much-needed diversification for portfolios in today's markets.

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Private markets are becoming more commonplace, with a lot of attractive opportunities. Hear what areas in the alternative space can provide much-needed diversification for portfolios in today's markets.

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Allocation Evolution: Why Alternatives are Essential in a Post-60/40 Era

Hello, I'm Jack Otter, head of Wealth and Asset Management at Barron's, and I'm joined by Brian Griggs, head of the Portfolio Strategy Group at Nuveen. Great to see you again, Brian.

Great to be on.

We only have five minutes. Let's jump right in. Question for you. Is the old 60 40 concept of portfolio construction still relevant today given these stock and bond correlations we're seeing? We all remember 2022 when the 60 40 approach experienced one of its worst years ever as stocks fell and yields jumped.

That's right, Jack, I think the 60 40 construct, it's really underpinned by this idea that stocks will be your offense, bonds will be your defense, and they'll kick into gear when you need them. And that's not totally out of this world of an idea. Particularly if you look back at the 15 to 20 years, pre 2022, we're in a very low benign inflationary environment and most of the equity selloffs in that time were brought on by shocks to nominal growth. And when there's a shock to nominal growth, as we know, the federal reserve can step in and bonds react favorably. Well, now that's somewhat changed. Now that we have more consistently higher stickier inflation. There's this idea out there that stocks and bonds might be a little bit more correlated to your point. And we saw that in 2022, and that's caused a lot of rethinking when it comes to portfolio construction.

So on the rethinking, what is the role of alternative assets to counter those limitations of 60/40?

So to protect against inflation shocks, one might say, well, all you really need to do is hold commodities or commodity linked equities to protect against those, those shocks. But the issue with that, Jack, is they tend to be more volatile daily liquid securities and you can't always predict those cycles. So I think that's why there's been this gravitation to private markets to solve for this conundrum. And I think it's, it's twofold. One, as we all know in this call, private markets aren't marked daily. So very mechanically, they do have a volatility dampening impact and a correlation dampening impact versus instruments like stocks and bonds that are priced daily and trade on exchange in the case of stocks. Two though, I think if you look beyond the wrapper, there's this idea out there that private markets can potentially generate more consistent returns, not only when you are experiencing those negative nominal GDP shocks, but also potentially when inflation is higher and more unstable. And I think that's why you're kind of seeing more allocators go to the private market construct 'cause they wanna hold something that can consistently generate those returns, compound wealth for clients, and potentially help increase their after tax after real, after inflation outcomes over the long term.

Okay, so when the rubber meets the road, how do the alternatives actually fit in the portfolio in terms of both incorporating alts and asset allocation, but also how should investors be rethinking about the reallocation process itself?

Sure and Jack, we hear a lot about the democratization of private markets and I think when many hear that they think of the product launches, and surely that's part of the story here, the rise of evergreen strategies that are more conducive to a wealth management practice. But also I think the democratization has to do with the tools, the analytics, the research for wealth advisors to allocate to these strategies with confidence and for their clients to be more confident in how they approach it. To answer your question, what we're seeing most commonly, it kind of fits into two camps, right? There's still advisors that think in terms of buckets with their portfolio, right? They have their stock bucket, they have their bond bucket, and maybe they have their private market bucket. And I don't think there's anything wrong with that. Typically what we've seen is a combination, right? We've seen probably prior to 2022, we saw more advisors carving off a portion for their alts bucket from the fixed income to generate higher yield. Today, given some of the stretch valuations we're seeing on the public equity side, we're hearing from more advisors that are taking assets from the equity side of the portfolio and allocating it to a diversified private market bucket. The other approach that we're seeing though, is more of a like for like sourcing model where they don't consider private markets or alternatives the separate bucket. They're just considering a part of the strategic allocation. So they're drawing from their equity sleeve and going into private equity. They're pulling assets for their private credit allocations from the fixed income side, and they're pulling assets from their liquid real assets into private real estate and infrastructure and other asset classes like farmland that can potentially generate real more stable returns over the long run. So I wish I could say there was one trend that really dominates, but we're really seeing a range of use cases with private markets in this environment.

So you just sort of hinted at the huge diversity in alts. I mean, frankly it's a pretty broad catch-all, just to say alternative investments, you need either a really big bucket or a lot of buckets. What alternative assets do you think will help best enhance this diversification goal and reduce that correlation risk?

Well, I think the conversations have also shifted in a sense that 10 years ago, whenever we talk to clients about alts or private markets, the conversations were more geared about generating higher alpha, higher returns than what you could potentially source in the public markets. Today we're having a lot more conversations about building in that stability and diversification with private markets. So of course, private equity is an asset class that can potentially generate high levels of return and you earn an illiquidity premium, and a control premium, particularly if you're able to pick those top quartile managers, but that's not all there is in the private market space. We're having a lot of conversations with clients today around private credit, of course, which has grown in popularity because of the more stable income return profile, but also in the real asset space, asset classes like core real estate that can generate consistent cash flow in an environment where new construction has been coming down. And also asset classes like farmland that really offer a unique source of returns to the portfolio. So it's a really exciting time to be across asset portfolio strategists, particularly at a firm that's focused on helping portfolios with private markets.

Yeah, it really is. And Brian, thank you so much for your insights. They're much appreciated.

Thank you, Jack.