Asset managers can gain a reprieve from public market headwinds by building private market investments into their traditional investment vehicles

Traditional investment managers are increasingly turning to private markets as a way to enhance portfolio diversification, generate alpha, and meet evolving client demands. With public markets facing structural challenges – such as lower expected returns, increased volatility, and interest rate uncertainty – private assets offer access to a broader opportunity set. These asset classes have historically delivered attractive risk-adjusted returns and lower correlation to public markets, making them a compelling complement to traditional portfolios. 

To integrate private markets into existing investment products, managers must rethink portfolio construction, liquidity management, and operational infrastructure. This often involves developing hybrid vehicles that blend public and private exposures, such as evergreen funds, interval funds, or customized separately managed accounts. Additionally, managers must address regulatory considerations, valuation complexities, and client education around illiquidity and long-term horizons. 

As demand for alternatives grows – particularly among high-net-worth individuals and institutional investors – traditional managers who successfully incorporate private markets into their offerings will be better positioned to deliver differentiated outcomes and remain competitive in a rapidly evolving investment landscape. 

The allure of private market investments amid public market headwinds

Significant headwinds are affecting public equities and fixed income markets, which may challenge the revenue traditional managers are able to generate by sticking with purely public market strategies. 

Evolving tariff announcements and escalating geopolitical tensions, including trade wars and military conflicts, have triggered sharp market swings. For example, the S&P 500 experienced a 10% drop in two days following new U.S. tariffs in April 2025,¹ followed by a brief rebound and another sharp decline. This volatility complicates portfolio management and risk forecasting for traditional asset managers. 

Simultaneously, interest rates have put pressure on fixed income markets for years now, hindering returns for fixed income managers. Rapid shifts in long-end government bond yields and central bank divergence are complicating rate strategies. The long-end government bond yield has hovered around 4.4% recently, compared to a long-term average of 5.8%.²

Expanding investor reach and deepening relationships

Investing in private markets brings several attractive benefits that appeal directly to some of the challenges facing traditional asset managers today. 

• Attracting new investors – Many institutional investors are seeking to grow their allocations to private markets asset classes, but the realities of high minimum investments plus low liquidity that come with pure play private capital funds can be a deterrent. By building semi-liquid options into vehicles like collective investment trusts (CITs) and mutual funds, which traditional managers tend to be experienced in, they can attract net new investors that may not have considered their funds in the past. 
• Deepening relationships with existing investors – In expanding to a new asset class, asset managers round out their product offering and provide a way for existing investors to deepen their engagement with their firm. According to Northern Trust’s Asset Owners in Focus study, one-third of institutional investors say that getting access to desired funds and managers is a top challenge, possibly exacerbated by the rush to increase private markets allocations. Asset managers can capitalize on this insight by providing existing investors with access to private markets via an investment manager they’re already engaged with. 
• Diversified fee structures – With more flexibility to align fee structure and manager compensation to fund performance, building in private market investments offers asset managers an opportunity to enhance revenue. With traditional investment strategies, fees typically amount to a small percentage of assets under management, with no additional revenue based on fund performance. With private markets, investors are often charged 2% of assets under management plus 20%³ of any returns over a predetermined hurdle rate. Private funds also often allow for certain fund expenses to be passed through to the investor. All in all, for a traditional asset manager feeling particularly squeezed by the realities of investing in pure public markets, the fee norms of private markets tend to be more generous. 

Operational challenges of bringing private market structures into public market wrappers

Critical operational challenges emerge whether a traditional asset manager attempts to integrate private market structures into public market wrappers like mutual funds, ETFs, or interval funds, or whether they choose to launch a new investment arm taking on a pure-play private capital strategy. 

• Operational infrastructure – Private assets often require specialized systems for deal sourcing, valuation, and monitoring that differ from public market workflows. Legacy platforms often lack the flexibility to handle bespoke contracts, capital calls, and non-standard reporting, requiring costly upgrades or new tech stacks. 
• Expertise and headcount – Managing private investments demands deep domain knowledge, especially in underwriting, due diligence, and legal structuring. Traditional teams may lack the experience, requiring firms to hire or partner externally, which increases overhead and slows execution. 
• Fee structures – Private market structures often involve layered fees (management, performance, transaction), which clash with the transparent, low-cost expectations of public market investors. Managers must redesign fee models to balance investor expectations with the economics of sourcing and managing illiquid assets. 
• Liquidity – Public wrappers promise periodic liquidity, but private assets are inherently illiquid and may take years to realize. Managers must engineer liquidity buffers, redemption gates, or interval structures to avoid mismatches that could trigger forced sales or fund distress. 
• Back-office administration needs – Private assets involve complex cash flows, bespoke legal agreements, and irregular valuations. Fund accounting, compliance, and audit processes become more intricate, requiring specialized staff and systems to maintain accuracy and transparency. Depending on how a firm expands their existing offerings into private markets, they may find they require multiple fund administrators or service providers in order to correctly service a new type of asset.

Pivoting fund operations to account for private markets investments’ needs

As traditional asset managers expand into private investments through vehicles like interval and tender offer funds, partnering with an experienced service provider becomes essential to navigate operational complexity, regulatory demands, and data transparency.  

A service provider can offer scalable fund administration, custody, and technology solutions tailored to private assets, helping managers maintain efficiency and compliance while mitigating operational risk. These key offerings include: 

• Fund accounting and administration 
• Transfer agency and investor services 
• Custody and safekeeping 
• Regulatory reporting and compliance support

Looking ahead to the private market shift

Incorporating private markets into traditional investment products offers managers a powerful way to diversify portfolios, the potential to enhance returns, and meet shifting client expectations. But it's clear the adoption of these private market investments into traditional investment vehicles requires operational preparation. As demand for alternatives continues to rise, managers who thoroughly evaluate the best way for their own firm to move into this growing space – and ensure their operational partner strategy is on point – stand to reap significant benefits, as do their investor base.

¹ CNBC, S&P 500′s 10% 2-day collapse from Trump’s tariff shock ranks among the deepest in history

² Bloomberg, United States Rates & Bonds

³ Investopedia, “What Is a Management Fee? Definition, Average Cost, and Example”