Private markets are on the cusp of a transformation – portfolio construction tools, technology, and broader industry engagement will lead this migration to model portfolios. Innovation promises to reshape how private funds operate, bringing greater efficiency, transparency, and accessibility.
Quality managers, automatic rebalancing and leveraging the portfolio construction and research capabilities of institutional consultants, will result in advisors gaining access to private market models portfolios for their clients. Historical studies have shown that a diversification strategy and disciplined re-balancing can lead to more consistent performance while reducing volatility.
The mutual fund model offers a compelling blueprint for the development of private markets models. Distributed ledger technology forms the technological backbone of this evolution. An immutable ledger, transparent transaction records and digital connectivity, solve the longstanding issues around manual verifications, long settlement cycles and slow transaction processing times. These advancements reduce administrative costs while fostering transaction scale.
For institutional consulting firms, this transition represents both challenge and opportunity. As traditional private market gatekeepers, consultants must evolve to develop HNW models portfolios as well as a client service strategy for the intermediary wealth channel. The most forward-thinking firms are already developing expertise in these areas and are tapping into this fast-growing market.
Thoughtful portfolio construction, rigorous research and education, could accelerate the advisor adoption of models, giving advisors access to curated and diversified private market solutions. The shift toward model-driven, technology-enabled private fund structures will accelerate in coming years. The winners will be investors who gain broader access to asset managers who embrace technological innovation, and consultants who reimagine their value proposition. The private markets will retain their performance premium while becoming more accessible, efficient, and transparent.