This year’s volatility highlights private markets’ strategic role in portfolio construction.
May 20, 2025
By Joan Solotar
The Stability Advantage
Historically, private markets have reduced the volatility of stock-bond portfolios, and they have done so without sacrificing returns or income potential. They can be used to drive an all-weather investment approach with diversification and risk-management features that have the potential to stand out during periods of market turbulence. [ 1 ]
Public markets tend to react in real time to shifts in sentiment or the macro environment, as evidenced by this year’s equity market ups and downs. But private markets operate on a fundamentally different timeline. With the proper structures and well-managed liquidity, private markets managers can typically avoid the forced selling that is often characteristic of public markets during periods of volatility. This means they can continue to focus on high-conviction themes and long-term value creation over time, including through volatile periods. [ 2 ]
The tradeoff is reduced liquidity in the private allocations of a portfolio — a reasonable exchange, in our view, for enhanced stability and performance potential.
This year’s volatility highlights private markets’ strategic role in portfolio construction:
Diversifying with private equity: Historically, private equity has delivered attractive returns across the market cycle and long-term outperformance versus public equities, especially when managers can capitalize on temporary market dislocation.[ 3 ]
Diversifying with real estate: Over time, private real estate has provided strong returns with less volatility compared to public real estate, and can help mitigate taxes in some jurisdictions. [ 4 ]
Diversifying with infrastructure: Infrastructure can offer hard assets with significant income generation potential, including in many cases inflation-protected income via contracted cash flows. [ 5 ]
Diversifying with private credit: By bringing borrowers directly to lenders, private credit has delivered higher yield and lower volatility over time compared to assets like high yield bonds. [ 6 ]
“Private markets managers can focus on high-conviction themes and long-term value creation over time, including through volatile periods.”
Joan Solotar
Key Risk Management Features
Private markets aren’t immune to economic challenges, but their structure can allow managers a greater opportunity to focus on long-term value creation rather than reacting to short-term pressures:
Active Management: Private managers can reshape assets or entire businesses through operational interventions typically impossible in public markets — a crucial source of their value-creation capabilities.
Strategic Timing Control: Private managers can exercise patience by strategically timing entry and exit positions, avoiding forced selling, and preserving capital in ways public markets generally cannot match.
Scale Advantages: Investors in private markets can deploy extensive operating resources, secure superior access to financing, and often take advantage of thinner competition for large-scale transactions. These strengths enable them to identify patterns across diverse asset portfolios early — often before they emerge in public data — and to strategically position their investments.
Measurable Portfolio Impact
In practical terms, a diversified approach incorporating private investments may reduce a traditional stock-bond portfolio volatility by anywhere from one-fifth to half, depending on the type of portfolio. [ 7 ] Meanwhile, assets such as private equity and credit components can help to improve return and income potential.[ 8 ]
At Blackstone, we view these assets as core building blocks for all weather, and what can be important diversifiers during these periods of market dislocation.
We are grateful for your continued trust in Blackstone. As always, we aim to provide institutional quality products with best-in-class service. Our team stands ready to help you build wealth with Blackstone.
Joan Solotar Global Head, Blackstone Private Wealth
“Private markets managers can focus on high-conviction themes and long-term value creation over time, including through volatile periods.”
Joan Solotar
Important Disclosures
Past performance does not predict future returns. There can be no assurance that any Blackstone fund or investment will achieve its objectives or avoid substantial losses. Any investment involves a high degree of risk and you may not get back the amount originally invested. There is no guarantee the trends depicted herein will continue or will not reverse. Diversification does not ensure a profit or protect against losses. Investing involves risk, including loss of capital.
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Trends
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PW202505341S
Past performance does not predict future returns. Diversification does not ensure a profit or protect against losses. Risk management seeks to mitigate risk but does not reduce risk or protect against losses. Source: Morningstar, over the 8-year period from January 1, 2016 to December 31, 2023 (latest full-year data available). Return and Volatility are based on quarterly returns. Volatility is represented by the standard deviation.
There is no guarantee that any investment will achieve its aims or objectives or avoid substantial losses.
Morningstar, Cambridge Associates, as of December 31, 2023 (latest full-year data available). Private equity is represented by the Cambridge Associates US Private Equity Index. Public Equity is represented by the S&P 500 Index. Return is calculated using quarterly returns from January 1, 1987-December 31, 2023 and is annualized over the period.
Morningstar Direct, NCREIF, cover the 20-year period ending December 31, 2024 (latest full-year data available).
Cambridge Associates, Cambridge Private Infrastructure Index, from January 2004 to March 2024, based on pooled returns. There is no assurance that any product will effectively hedge inflation.
Morningstar, Cliffwater, as of December 31, 2024 (latest full-year data available).
Diversification does not ensure a profit or protect against losses. Note: Past performance does not predict future returns. Based on illustrative portfolio returns calculated on net total returns, assuming quarterly rebalancing over the 20-year period from September 30, 2004 to September 30, 2024. The compound performance includes the index providers, or when unavailable, Blackstone’s approximate adjustment for leverage and fees, which are typically borne by the investor. Public Market Portfolio Allocations: Income (25% Equities / 75% Fixed income). Growth: (75% Equities / 25% Fixed Income). Equities is represented by the S&P 500, MSCI Emerging Markets Index and MSCI World ex US Index. Fixed Income is represented by the Bloomberg US Treasury Index (Unhedged) and Bloomberg US Corporate Bond Index (Unhedged). Private Market Portfolio Allocations: Private Real Estate is represented by the NFI-ODCE Index. Private Credit is represented by the Cliffwater Direct Lending Index with Blackstone’s approximate adjustment for leverage and fees. Private Equity is represented by the Cambridge Associates Private Equity Buyout Index. Private infrastructure is represented by the Cambridge Associates US Private Infrastructure Index. For data prior to 2008, the Cambridge Associates US Private Infrastructure Index data has been supplemented with international infrastructure data. NFI-ODCE Index, Cambridge Associates Private Equity Buyout Index and Cambridge Associates US Private Infrastructure Index are net of fees.
Any investment involves a high degree of risk and there is no guarantee that any investment will achieve its aims or objectives or avoid substantial losses.
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