Wealth advisors are leaning into
private market assets as they search for income and diversification, but a clear warning is emerging on liquidity risk. Across firms, professionals report a rise in allocations to private equity, private credit, and non-traded real estate. The shift comes amid higher rates and choppy public markets, with clients asking for steadier returns. Yet the ability to exit these investments during stress remains a central concern.
“Advisors are increasingly adding private market assets to client portfolios, yet liquidity concerns should not be underestimated.”
The comment captures a tension shaping portfolio construction today. Many products promise attractive yields and lower day-to-day volatility. They also come with lockups, gates, and infrequent pricing. That mismatch can surprise investors who expect fast access to cash.
Why Private Assets Are Rising
Private funds have moved from institutional accounts to wealth platforms over the past decade. Sponsors now offer feeder funds, interval funds, and tender-offer vehicles tailored to individual investors. These structures often target income, inflation protection, or lower correlation with stocks and bonds.
Market swings have reinforced demand. After sharp drawdowns in public markets, some clients asked for exposures that appear steadier. Advisors also point to higher yields in private credit and to niche real estate strategies tied to housing or logistics.
Distribution teams have responded with education and simplified access. Minimums are lower than in the past, and some products offer periodic liquidity. That has helped bring private markets into a broader set of portfolios.
The Liquidity Trade-Off
Private
investments do not trade daily. Investors may face quarterly windows, percentage-based redemption limits, or multi-year lockups. During heavy outflows, funds can hit redemption gates. In stressed markets, selling underlying assets can take time and may force discounts.
That structure can support long-term value creation. It can also create cash-flow stress if clients need money faster than a fund can provide it. The risk grows when multiple private positions sit inside one household account.
- Lockups delay access to cash during emergencies.
- Redemption queues can extend in market stress.
- Asset valuations update less frequently than public markets.
How Advisors Are Responding
Practitioners describe a few practical steps to balance return goals with liquidity needs. First, sizing is smaller. Advisors cap private allocations at levels that fit the client’s time horizon and cash demands. Second, cash ladders are more common. Portfolios hold short-term Treasuries or money funds to cover near-term expenses and taxes.
Third, managers stagger liquidity profiles. An account might combine an interval fund, a multi-year fund, and fully liquid holdings to spread redemption risk. Finally, advisors conduct scenario tests. They map how much cash a client could access in 30, 60, and 90 days under normal and stressed conditions.
Education is central. Clients need clear explanations of redemption terms, notice periods, and potential gating. Written plans for cash needs reduce the chance of forced sales at bad times.
Investor Suitability And Oversight
Suitability has taken on new weight as private products reach a wider audience. Advisors stress that emergency savings and short-term goals belong in liquid assets. Private holdings fit better with surplus capital and longer horizons.
Regulatory attention is rising as well. Firms are tightening disclosures and reviewing sales practices for alternative products. Compliance teams expect
advisors to document client liquidity needs, risk tolerance, and understanding of redemption terms. Clear reporting on cash coverage and lockup timelines is becoming standard in reviews.
What To Watch Next
Several questions will guide the next phase. Will higher rates keep attracting money to private credit, or will public bonds satisfy income goals? How will non-traded real estate funds manage redemptions if property markets soften again? Can product design improve access without weakening investment discipline?
Advisors say product selection will hinge on transparency and alignment. Vehicles that match stated liquidity with underlying assets are preferred. Tools that improve client-level cash planning should also gain traction.
The trend is clear: more portfolios include private assets, often in measured doses. The message is equally clear: liquidity still rules. Investors and advisors who plan for access to cash, size allocations carefully, and set realistic timelines are better positioned. The coming quarters will test which structures deliver stable returns while honoring redemptions, and which do not.
