Echoes: The evolution of the modern 60/40 portfolio

Why private assets matter

The 60/40 model really started being tested around 2014, when the European Central Bank pushed policy rates into negative territory, which created an entirely new regime for investors – particularly in Europe. It wasn’t just another rate cut: investors suddenly discovered that if they left cash in money market funds or bank deposits, they were effectively paying for the privilege.

“This was a shock, especially for institutions that had only ever known a positive-rate environment,” recalls Philippe Faget, Head of Private Assets at VEGA Investment Solutions. “It forced them to think differently about asset allocation, portfolio construction, and how to meet long-term return targets when the traditionally ‘safe’ part of the portfolio no longer offered yield.

“Crucially, this environment accelerated the development of private assets. Pension funds, insurers and other long-term investors had to look beyond listed bonds and equities to generate the returns they needed, and private equity, private debt and infrastructure became central, not peripheral, in strategic asset allocation.”

Today, private markets have moved from the margins of portfolio construction to the centre of the conversation. According to Preqin data, global alternative assets under management – covering private equity, private credit, infrastructure, real estate, hedge funds, and natural resources – have surged from $11 trillion pre-Covid to an expected $32 trillion by 2030¹.

That growth is not just a story about institutional finance becoming more fashionable. It reflects a structural shift in how capital is raised, how companies stay private longer, and how investors are searching for income, diversification and access to longer-duration themes available in private assets.

Diversification is still the name of the game

Financial advisers certainly see clear benefits to adding private assets to client portfolios. According to our survey², almost half (49%) say private assets are more attractive given high correlations in public markets, while 56% say private assets have improved outcomes for clients.

Moreover, with more than $84 trillion³ in assets changing hands over the next two decades – as older individuals pass wealth to spouses, children, grandchildren, charities, and foundations – advisers are keenly aware that younger investors are likely to continue the trend towards private assets.

Indeed, another of our reports⁴ finds that 55% of millennials and 46% of Gen X investors say the more they read about private assets the more they want to invest, a sentiment only 29% of boomers express. Meanwhile, 44% of millennials feel they are missing out on the best opportunities (eg SpaceX, OpenAI) by only being invested in public markets.

Education will need to be part of the process, however, as 63% of millennials and 66% of Gen Xers also think private assets are priced daily like stocks. There’s clearly a balance to be struck when allocating to public or private assets, and investors looking to make generational wealth in just a few investments are likely to be disappointed.

As Nitin Gupta, Co-CIO and Managing Partner at private equity specialists Flexstone Partners, puts it: “If chasing the next Nvidia or Bitcoin is someone’s passion, our approach won’t suit them. We pursue a ‘sleep well at night’ strategy: aiming for consistent two-times returns, fund after fund. That’s the ethos we built at Flexstone. It’s not about finding a unicorn – it’s about repeatable, sustainable performance. Investors attracted by this steadiness appreciate the value of compounding and repeatable returns.

“Everyone loves talking about windfall trades or building generational wealth at cocktail parties, but many experienced allocators recognise the wisdom of steady, consistent results – especially institutional investors. We don’t advocate putting 100% into PE, but believe PE should be a part of most portfolios.”

A modern portfolio framework

The updated version of 60/40 is better thought of as a whole-portfolio framework rather than a rigid formula. Public equities still anchor growth, investment-grade bonds still play a stabilising role, but private credit, infrastructure, and other real assets can be used to broaden diversification and improve the portfolio’s risk-adjusted returns.

Essentially, the trade-off is quite straightforward. More diversification usually means less liquidity, greater operational complexity and a greater need for manager selection discipline⁵. It means the modern portfolio conversation is less about declaring the death of 60/40 and more about recognising its limits: Goldman Sachs expects a broadening equity market in 2026, but also sees lower index-level returns than in 2025, which reinforces the case for looking beyond a narrow set of public-market winners⁶.

In that environment, allocators are likely to favour portfolios that combine public-market efficiency with private-market access, a larger toolkit for income generation and a more deliberate approach to liquidity management. The result is not a rejection of the classic model, but its evolution into a more flexible, multi-asset framework⁷.

Put simply, the 60/40 portfolio is not obsolete – it remains a sound starting point, especially when bonds are once again offering a more credible diversification role. But the next generation of portfolio construction will not be defined by a single static mix. It will be defined by the ability to combine public and private assets intelligently, manage liquidity efficiently, and build portfolios that are more resilient to a wider range of market outcomes.