Start from the plan, not the product
A private markets allocation should serve a goal your client already has, such as growing family net worth over decades. Begin with their time horizon, their need for cash and how they feel about risk. If money may be needed within a few years, it belongs elsewhere.
Sizing the sleeve
There is no single right number. The sleeve should be small enough that your client can meet every expected withdrawal from the rest of the portfolio, even in a bad year for markets. Your firm’s playbook can set a cap on the private markets share for each client, so every plan stays inside it.
Diversify across vintages
Returns in private markets depend heavily on the year a fund starts investing, its vintage. Committing a steady amount each year, rather than all at once, spreads that risk. This is called pacing, and it also smooths the flow of capital calls and distributions over time.
Diversify across managers and strategies
The gap between stronger and weaker managers is wider in private markets than in public ones. Spreading commitments across several managers, and across strategies such as venture capital, growth and buyout, reduces the impact of any single outcome.
Explaining illiquidity
Clients need to hear plainly that this money is locked up. Holdings are long term, and transfers to other eligible investors are only possible after a lockup period, at a price tied to reported value. Set expectations early: early reports often show modest results while investments mature, and cash comes back over years, not months.
Keeping it on track
Review the sleeve at each regular meeting alongside the rest of the plan. Look at how much has been paid in, how much has come back and what is still held, and adjust future commitments to keep the allocation near its target.
Educational content only, not investment advice. Examples use sample figures.