Private Markets: New Order in the Portfolio – Opportunity, Trend, or Mandatory Program?

When Financing Suddenly Didn't Come from Banks

Frankfurt am Main, late 2000s. In an office, Aileen Haller explains an unfamiliar concept to entrepreneurs: loans for the middle market, not from banks, but from funds. Today, this is known as direct lending. Back then, it needed explanation – and was simply suspicious to many companies.

Why take money from an investor you don't know? Especially from a foreign provider without a known brand? Haller's task was to persuade. She spoke of more flexible structures, faster decisions, and financing without a bank in between.

The reality was tough. The market practically didn't exist. Middle market financing was firmly in the hands of banks. Ares Management, for which Haller worked, was hardly known in Europe.

Today, the picture is completely different. Around 60 percent of financing for German middle-market companies in private equity hands now comes from direct lenders. Banks still play a role – but no longer alone.

Private Markets Leave the Niche

This development exemplifies a profound change. Private markets – that is, non-listed investments, infrastructure projects, and private loans – have evolved from a niche topic for institutional investors to a strategic component of modern portfolios.

What long seemed an exclusive field for pension funds, insurers, and foundations is now coming into focus for broader investor groups.

Larry Fink's Farewell to the 60/40 Model

The loudest proponent of this paradigm shift is in New York: Larry Fink, CEO of the world's largest asset manager BlackRock. In his latest letter to investors, he declares the classic 60/40 portfolio outdated.

Instead of 60 percent stocks and 40 percent bonds, Fink proposes a new structure: 50 percent stocks, 30 percent bonds, 20 percent private markets.

The reasoning is fundamental: stocks and bonds no longer provide sufficient diversification. Both asset classes increasingly react to the same macroeconomic factors – growth and interest rates.

Where the Economy Really Happens

Benjamin Fischer, head of Germany for banks and asset managers at Blackrock, supports this thesis with numbers: Only about twelve percent of companies with more than 100 million dollars in revenue are publicly listed. Most of the economic value creation takes place outside the public markets.

The year 2022 was the turning point. Stocks and bonds both lost significantly. "Whether defensive or aggressive – almost everywhere ended with a double-digit loss," says Fischer. This showed how strongly portfolios are concentrated on a few influencing factors.

Private markets offer an advantage here: company- or project-specific return drivers that correlate little with stock market developments.

Blackrock's Billion-Dollar Bet

That Blackrock is serious is shown by its capital deployment. Within 18 months, the company invested nearly 30 billion US dollars in expanding its private markets platform – including the acquisition of Global Infrastructure Partners, data provider Preqin, and private credit specialist HPS Investment Partners.

For comparison: the purchase of iShares, now the market leader in the ETF business, cost around 13.5 billion dollars in 2009. The strategic priority is clear.

Why Banks Had to Make Room

The rise of private markets is no accident but the result of several structural developments. After the financial crisis, stricter regulatory requirements like Basel III forced banks to higher equity ratios. Long-term or riskier loans became unattractive.

Gerhard Grüter from the family office Tropea Capital speaks of a clear catalyst for the growth of private credit. New providers emerged to fill the financing gap, able to act faster, more flexibly, and often more individually.

At the same time, years of zero interest policy created massive investment pressure. Traditional bonds offered little return. Investors sought alternatives – and found them in illiquid investments with additional return premiums.

The Building Blocks of Private Markets

Private credit is considered by many as a robust core investment. Variable interest rates offer protection against inflation, and volatility is lower than with listed securities. Funds have achieved an average return of around nine percent over the past two decades – with historically low default rates.

Infrastructure investments also convince with stable, often inflation-protected cash flows. Moreover, they are gaining political importance. In Germany, a separate infrastructure quota for insurers and pension funds was recently introduced.

Illiquidity Loses Its Fear Factor

For a long time, the capital commitment over many years was considered the biggest disadvantage of private markets. Today, a growing secondary market mitigates this risk. Investments are increasingly tradable, exit options become more predictable, flexibility increases.

Thus, private markets lose their purely long-term character – without losing their structural advantages.

New Order with Conditions

Private markets are neither a panacea nor mere hype. They are the logical response to changed capital markets. For investors, they open up additional sources of return and genuine diversification – but require patience, understanding of illiquidity, and careful selection.

The new portfolio order is not a must for everyone. But those who ignore it are increasingly investing past reality.