An effective way to incorporate private assets into your investment portfolio

Investors have long relied on a classic allocation between equities and fixed income to pursue growth and manage risk. But today’s increasingly complex financial landscape calls for a more thoughtful approach to portfolio construction, which is why investors are increasingly investing in private assets. Incorporating private assets into a traditional asset mix is an effective way to boost returns while adding diversification to your portfolio. In making the change, a key question many ask is: How do private assets fit into my existing portfolio?

There are many benefits to adding private equity and private credit to your investment mix. Because private asset prices tend not to be correlated with stock and bond market movements, they can offer reduced volatility through diversification — and access to the innovation that is reshaping the global economy. It doesn’t hurt that they also have a track record of higher long-term returns than public assets.

How do you strategically incorporate these less-liquid, longer-horizon assets into an existing, well-constructed public markets portfolio? For Christopher Ginter, director of private markets at Fifth Third Private Bank, the answer lies in applying the same foundational investment principles — your objectives, constraints and diversification — while accounting for the unique characteristics that come with investing in private markets.

How to blend private assets into your portfolio

According to Ginter, incorporating private assets doesn’t require a complete portfolio overhaul. In fact, the most effective strategy is often a precise, thoughtful reallocation. “You begin with the same considerations you would for a public portfolio,” Ginter says. “Time horizon, liquidity and legal constraints all play critical roles in why — and how — you bring private assets into the mix.”

Assuming the individual meets the regulatory requirements for buying private assets as a qualified purchaser and accredited investor, Ginter recommends a like-for-like approach: Fund private equity investments by trimming existing public equity exposure, and fund private credit by reducing bond holdings.

“This way, you maintain the original risk-return characteristics of your portfolio while potentially boosting returns.”

Rather than investing all at once, consider a phased approach, known as vintage year diversification. In private asset investing, vintage refers to the year in which a fund begins deploying its capital. With vintage year diversification, for example, if you want to allocate $1 million to private equity, you might commit 30% in year one, 30% in year two and so on. This strategy spreads risk over time and helps smooth out the impact of market cycles.

“Vintage year diversification also allows investors to gradually build familiarity with the asset class,” Ginter notes. “Most clients who’ve been with us for three or more years increase their allocations, but we always suggest starting small.”

Understand private investment trade-offs

While the potential upside is compelling, private market investments come with some important trade-offs. Chief among them is illiquidity. Private funds often require 10-to-12-year commitments, with distributions delayed until years six or seven. That means investors need enough liquidity elsewhere to weather market downturns without tapping into locked-up capital.

“You need to match product structure with your financial strategy,” says Ginter. “Someone with $50 million might tolerate more illiquidity than someone with $5 million — but even more important is understanding how the capital will be used.”

That’s why Fifth Third Private Bank tailors private allocations and portfolio management to each client’s specific needs, goals and risk tolerance. The key is balance and maintaining enough liquidity to meet spending requirements while allocating a portion of the investment portfolio to long-term, higher-growth opportunities.

Choosing the right fund managers

Fund manager selection is arguably the most important factor in private investing success. Since private funds are less regulated than public investments, due diligence is critical. Ginter’s team uses a five-pillar evaluation framework — people, process, performance, philosophy and product terms — to identify the most capable partners.

“You want managers with a unique investment edge, strong operational infrastructure and a solid track record,” he explains, “and you need to understand the fine print — fee structures, leverage and key-person clauses vary widely.”

Investing in private markets requires the right tools and insights. Analytical resources like the Takahashi-Alexander model, which is used to forecast capital calls and distributions, and data from PitchBook, to benchmark performance, help ensure private assets remain aligned with a broader portfolio management strategy. But as Ginter cautions, “The models are helpful, but they’re not magic. You still need sound judgment.” That’s why it’s critical to have knowledgeable investment managers to help you navigate these complex decisions. The investment teams at Fifth Third Private Bank have many years of experience with private asset investing and portfolio allocation.

Private markets' future strategy

Private market investments aren’t just a tool for diversification; they can be a gateway to where the economy is heading. Innovations in AI, robotics, blockchain and health care are often incubated in private companies long before reaching public markets. Investors who gain early access to these trends are better positioned for long-term growth.

Private assets are also ideal for building intergenerational wealth. “If your time horizon is 10, 20 or even 30 years, private investments can be a powerful part of your legacy planning,” Ginter says. “They’re well suited for gifting strategies, trusts and long-term endowments.”

For investors seeking to enhance returns, diversify meaningfully and investing in tomorrow’s innovation, private assets offer a compelling value proposition. They’re not for everyone, but for those who can tolerate limited liquidity and longer time horizons, they can be a transformative addition to the traditional stock-and-bond mix.

For more information on private markets, contact your Fifth Third Private Bank advisor.