How to Approach Private Markets Asset Allocation

We continue to advocate that investors think differently about their asset allocation strategies, especially given the higher nominal GDP environment in the United States. Specifically, our Regime Change thesis focuses on four key inputs (bigger deficits, heightened geopolitics, a messy energy transition, and stickier services inflation) that we think necessitate a new approach to traditional asset allocation strategies for investors. What do investors need to know? 1: 𝐖𝐞 𝐚𝐭 𝐊𝐊𝐑 𝐞𝐱𝐩𝐞𝐜𝐭 𝐟𝐥𝐚𝐭𝐭𝐞𝐫 𝐫𝐞𝐭𝐮𝐫𝐧𝐬 𝐚𝐧𝐝 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐞𝐝 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧𝐬 𝐭𝐨 𝐧𝐨𝐧-𝐜𝐨𝐫𝐫𝐞𝐥𝐚𝐭𝐞𝐝 𝐚𝐬𝐬𝐞𝐭𝐬 𝐢𝐧 𝐩𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨𝐬. The five-year forward median return across asset classes we forecast is fully 180 basis points lower than what we saw over the last five years (meaning there will be less differentiation between the best- and worst-performing assets in a portfolio, on average). At the same time, ‘old’ #portfolio correlations are breaking down, so asset allocation – not single asset volatility – has a much bigger impact on overall portfolio volatility. Our message is to seek out – all else being equal – more uncorrelated assets in one’s portfolio. 2. 𝐎𝐰𝐧 𝐦𝐨𝐫𝐞 𝐜𝐚𝐬𝐡-𝐟𝐥𝐨𝐰𝐢𝐧𝐠 𝐚𝐬𝐬𝐞𝐭𝐬 𝐥𝐢𝐧𝐤𝐞𝐝 𝐭𝐨 𝐧𝐨𝐦𝐢𝐧𝐚𝐥 𝐆𝐃𝐏 𝐠𝐢𝐯𝐞𝐧 𝐭𝐡𝐞 𝐡𝐢𝐠𝐡𝐞𝐫 𝐫𝐞𝐬𝐭𝐢𝐧𝐠 𝐡𝐞𝐚𝐫𝐭 𝐫𝐚𝐭𝐞 𝐟𝐨𝐫 𝐢𝐧𝐟𝐥𝐚𝐭𝐢𝐨𝐧 𝐭𝐡𝐢𝐬 𝐜𝐲𝐜𝐥𝐞. This includes building flexibility across mandates and carefully considering duration. As such, we strongly believe that an overweight to modestly leveraged Infrastructure and certain Real Estate investments with yield is prudent for adding ballast to one’s portfolio. We are also quite constructive on Asset-Based Finance, which provides numerous shorter duration opportunities with good cash flowing characteristics and sound collateral. 3. 𝐎𝐰𝐧 𝐦𝐨𝐫𝐞 𝐚𝐬𝐬𝐞𝐭𝐬 𝐰𝐡𝐞𝐫𝐞 𝐲𝐨𝐮 𝐜𝐨𝐧𝐭𝐫𝐨𝐥 𝐲𝐨𝐮𝐫 𝐝𝐞𝐬𝐭𝐢𝐧𝐲, 𝐩𝐚𝐫𝐭𝐢𝐜𝐮𝐥𝐚𝐫𝐥𝐲 𝐢𝐧 𝐚 𝐰𝐨𝐫𝐥𝐝 𝐰𝐡𝐞𝐫𝐞 𝐭𝐫𝐚𝐝𝐞 𝐛𝐚𝐫𝐫𝐢𝐞𝐫𝐬 𝐚𝐫𝐞 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐢𝐧𝐠. We suggest tilting portfolios towards domestic consumption stories. We also favor more control situations, especially in the private markets, where operational improvements or strategic consolidation can, at times, drive robust profit growth, especially in #PrivateEquity. We continue to favor political changes that drive corporate reforms, hence our optimism around investing in #Japan. Still, as the convergence and blurring of the lines between national and economic security gains momentum, we expect to see more policies that encourage domestic savings, higher profits, and a lower cost of capital. Read more on asset allocation and portfolio construction in our Outlook for 2025: https://go.kkr.com/3v0WI7Q

How UCLA’s Endowment Wins in Private Equity 🚀 Ever wondered how top endowments consistently outperform in private equity—while most institutions simply chase the biggest names? 💡 Here’s the secret: most endowments are missing a crucial layer of strategy—and it’s costing them billions in missed returns. Let’s break it down with Michael Marvelli what UCLA’s team does differently: 👉 Asset Allocation Isn’t Enough: - 90% of returns come from portfolio construction, but most endowments stop there. UCLA goes deeper—focusing on asset class strategy before even picking managers. 👉 The Lower Middle Market Edge: - UCLA targets private equity’s lower middle market—where multiples are lower, but the potential for arbitrage is massive. They buy at 8x, grow cash flow, and exit at 15.5x. That’s a 7.5x multiple uplift—just from arbitrage! 👉 Why Not Everyone Does This: - Most endowments are too big, too bureaucratic, or too focused on “world-class” managers. UCLA’s sweet spot? A specialized team, strong governance, and a willingness to invest in fund one—where real alpha is found. 👉 The Power of Focus: - By ignoring the crowded upper market, UCLA’s team becomes experts in a niche—building pattern recognition, trust, and real value for their GPs and founders. 👉 Founder Psychology Matters: - Founders often choose partners, not just the highest bidder. UCLA’s GPs build rapport, roll equity, and create alignment—turning sellers into long-term partners. So, what’s the real lesson here? It’s not about being contrarian—it’s about first-principles thinking, specialization, and relentless focus on where the market is inefficient. 🎯 Curious: - What’s the biggest blind spot in your investment strategy? - Have you ever considered the power of the lower middle market? Drop your thoughts below! 👇 #PrivateEquity #Endowment #InvestmentStrategy #AssetAllocation #LowerMiddleMarket #Finance #Investing #WealthManagement #Alpha #PortfolioConstruction Link to Podcast in Comments Below 👇

🚀 Why Portfolio Construction Is the Real Superpower in Private Markets Spoiler: It’s not just about picking managers — and never was. Allocators know this deep down: Manager selection was never enough. Yes, backing top-quartile GPs matters. But in private markets, alpha gets lost without portfolio design discipline. And right now — after years of: 📉 Liquidity pressures ⏳ Pacing gaps 🧩 Exposure without real diversification  — portfolio construction is the differentiator. It’s what separates resilient portfolios from reactive ones. 🔍 Hamilton Lane’s latest report breaks it down: 📌 (Link in comments below 👇) 🧩 Diversification ≠ Strategy Spreading capital across asset classes isn’t construction. Today’s portfolios demand precision across: • Vintage year timing • Geography • Sector allocation • Liquidity profile ⏳ Commitment Pacing Is Critical Miss the mark and you risk being: • Overexposed in downturns • Underinvested in rebounds 📉 Data Deserts Still Persist Private markets lack daily repricing. You can’t manage what you don’t (or can’t) measure. Allocators must: • Understand shifting micro + macro conditions • Analyze global fund flows • Conduct scenario-based modeling • Layer in personal judgment • Build resilient, probability-weighted assumptions 💡 This isn’t about what changed. It’s about what the current market reveals. Portfolio construction has always been the foundation. Now, it’s the edge — especially as volatility compounds and time becomes your adversary. 🎯 Hot take: Private markets are the ultimate “measure twice, cut once” game. Precision > intuition. 📢 Curious to hear from CIOs and LPs: → What’s changed in your construction approach? → How are you adapting pacing and risk today? 👀 Next up: 💡 Why illiquidity isn’t a flaw — it’s a feature (if designed for). #PrivateMarkets #PortfolioConstruction #AlternativeInvestments #CIO #InvestmentCommittee #HamiltonLane #FundStrategy #LongTermCapital David Zhou Superclusters Asilica Redshift Capital