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CONTRIBUTORS

Tony Davidow, CIMA®

Senior Alternatives Investment Strategist
Franklin Templeton Institute

As we shift our focus from 2025 to 2026, the equity markets are reaching new highs, the Fed has resumed its rate-cutting cycle, inflation remains stubborn, and geopolitical risks are elevated around the world. The markets are still digesting the impact of trade tariffs and their long-term implications.

As you approach year-end conversations with your clients, consider discussing private market investing opportunities. We believe private markets are uniquely suited for today’s market environment and can add value to traditional portfolios by providing attractive risk-adjusted returns, the potential for higher returns and income, and diversification benefits.

Why Invest in Private Markets?
Private markets have historically delivered attractive risk-adjusted returns

Historical performance vs. risk
10 years ending June 30, 2025

Sources: Giliberto-Levy, MSCI Private Capital Solutions, Bloomberg, Cliffwater, FTSE, MSCI Indexes, Morningstar, PitchBook LCD, ICE BofA Indices, Macrobond, Analysis by Franklin Templeton Institute.

Notes: Indexes used: Private Real Estate Debt: Giliberto-Levy High-Yield Real Estate Debt Index; Private Real Estate: MSCI Private Capital Solutions' fund search results for Private Real Estate across all regions; Private Equity: MSCI Private Capital Solutions' fund search results for Private Equity funds (all categories) across all regions; Private Credit: Cliffwater Direct Lending Index; Secondaries All Strategies: MSCI Private Capital Solutions search results for global secondaries across all strategies; Public Equities: MSCI All Country World Index, Agg. Bonds: Bloomberg Global Aggregate Index (Total Return), REITs: FTSE EPRA/NAREIT Global REITs Index, Leveraged Loans: Morningstar Global Leveraged Loan Total Return Index, High Yield Bonds: ICE BofA Global High Yield Index. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results. Important data provider notices and terms available at www.franklintempletondatasources.com.

Specifically, private equity has historically delivered an illiquidity premium relative to public market equivalents; private credit provides an alternative source of income; and real estate (equity & debt) provides growth, income, and inflation hedging—and has historically had negative correlation to most traditional investments. 

Year-end, or beginning-of-year discussions, can serve as an opportunity to deepen your relationship and demonstrate the value you bring your clients.  You can use the “5-Rs” as a guide.

Revisit: Client goals and objectives often change over time, especially during periods of volatility. Year-end presents an opportunity to revisit each client’s goals and objectives. It is also a great opportunity to discuss what types of private market allocations will help them achieve their investment goals—growth, income and/or portfolio diversification.

Refresh: After reviewing their goals and objectives, consider refreshing each client’s asset allocation. Do you have the right mix of investments? Do you need to add new investments? Are they in the appropriate weights?  

Rebalance: Year-end is also a good time to rebalance client portfolios. During periods of strong equity returns, it is easy to get out of line, potentially taking on more risk than their original strategic allocation. You may need to trim equity allocations and redeploy to other investments. Note, private markets are long-term investments, and one shouldn’t try to rebalance them. However, you can use this opportunity to introduce additional private market opportunities to continue to diversify client portfolios, as we note in the next step.

Reinvest: This may also be a great opportunity to increase one’s private markets allocation and/or commit capital to a new private market investment. Private markets have historically strong risk-adjusted returns, and over the long run, have delivered an illiquidity premium relative to their public-market equivalents.

Recommit: Use your year-end planning discussion to remind clients of the purpose of the plan, their long-term goals, and what their portfolio is designed to do. It is also an opportunity to remind them of the long-term nature of private markets, and to remind them how they complement traditional allocations, especially during volatile times.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Investments in many alternative investment strategies are complex and speculative, entail significant risk and should not be considered a complete investment program. Depending on the product invested in, an investment in alternative strategies may provide for only limited liquidity and is suitable only for persons who can afford to lose the entire amount of their investment. Diversification does not guarantee a profit or protect against a loss.

Past performance does not guarantee future results.

WF: 7203860

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