Can modern multi-asset investing do more to manage risk?

February 6, 2026

Written by Grant Callaghan, Investment Specialist at Verve

Last week, we published a white paper examining how the definition of “multi-asset” investing has evolved, and why the traditional equity/bond approach may no longer provide the level of diversification advisers expect. Here, I’d like to build on the analysis, focusing on one practical question raised repeatedly since its release: can broader diversification help reduce downside risk without adding unnecessary complexity to client portfolios?

Asset allocation drives returns, and it drives risk. This principle underpins much of what advisers recommend to clients and is supported by a long and well-evidenced investment history. However, recent market conditions have tested some of the assumptions that sit behind traditional portfolio construction.

Most multi-asset funds and portfolios still focus primarily on two major asset classes: equities and fixed interest. This has become even more common following the liquidity and redemption challenges experienced by funds focused on physical property. An equity/fixed interest portfolio can achieve a great deal in terms of diversification and long-term, above-inflation return potential, but recent experience has shown that this approach is not without its limitations.

In 2022, we saw a breakdown in the traditional risk model underpinning equity and fixed interest diversification, with both asset classes delivering negative returns at the same time. This may ultimately prove to be a one-off event, and for long-term accumulators it may have limited impact on outcomes. However, it does raise an important question: can the risk of this happening again, and overall downside risk, be reduced through broader diversification? That question sits at the heart of the discussion around modern multi-asset investing.

Looking beyond equities and bonds

The range of assets that can contribute to diversification extends well beyond traditional markets. These include physical property, infrastructure, private equity, private debt, commodities and, at the more speculative end of the spectrum, assets such as cryptocurrency. Not all of these will be suitable for all clients, and not all offer the same diversification benefits. However, private markets in particular have received increasing attention from both government and industry as a potential contributor to more resilient portfolios.

As a result, advisers are increasingly considering whether private assets have a role to play within multi-asset solutions. Not as a replacement for public markets, but as a complement to them.

Private markets and diversification

Recent industry research provides some useful context. Morningstar analysis published in 2024 showed that, relative to global equities, private assets exhibited correlations ranging from around +0.78 for private equity to approximately +0.38 for private real estate. Compared with US Treasuries, correlations ranged from roughly -0.38 for real assets (including infrastructure and natural resources) to around -0.08 for private equity secondary markets.

If you are less familiar with the concept of asset correlation, then just know that the further you move from +1.0 correlation to -1.0, the more you are going to benefit in terms of seeing one asset perform well when another is struggling. Taking the most correlated pair here (private equity with global equity), we would expect both to move in the same direction (whether up or down), with private equity moving at a rate relative to global equity. You would see less of a drawdown, but also less of a total return.

Reducing the magnitude of drawdowns can be an important element of risk management, particularly for clients in decumulation or with lower risk tolerances.

Access and implementation

Despite the perception that private markets are difficult to access, some strategies have been available for many years and benefit from established track records. Providers such as Schroders, Saltus and Partners Group offer private equity options with histories extending beyond five years.

Within the multi-asset space, there are also funds and investment trusts that have long held meaningful allocations to private assets. PruFund, for example, has between 25% and 30% invested in private assets across its Growth and Cautious funds. The existence of these long-standing approaches means that due diligence, while essential, may be less complex than is sometimes assumed.

Risk and governance considerations

Introducing private assets does not necessarily increase risk for advisers, provided allocations remain proportionate and aligned with client needs. Past issues with commercial property funds tended to arise where liquidity requirements were not adequately considered.

While ‘do-it-yourself’ approaches, like using private market funds as satellite holdings, require careful oversight, established multi-asset solutions that incorporate private assets within a broader framework can often sit comfortably within existing governance, suitability and monitoring processes.

Conclusion

As investment markets continue to evolve, advisers are increasingly questioning whether a traditional equity/bond allocation alone provides sufficient diversification. Heightened volatility, inflationary pressures and changing correlation dynamics have all contributed to this reassessment.

For many clients, effective risk management remains a priority. For advisers looking to enhance diversification through the inclusion of alternative and private assets, access options are becoming more established and easier to evaluate. For more, our recent white paper explores this evolution of multi-asset investing in more detail, including how specialist providers can support advisers as portfolios move beyond traditional asset mixes.