Beyond public and private: How Asia’s institutions are rethinking portfolio construction

FOR decades, institutional portfolios were constructed primarily through asset-class allocations, with risk budgets, benchmarks and accountability organised around the same categories.

This provided discipline, but it could also lead investors to assess each allocation in isolation rather than by what it contributed to the portfolio as a whole.

This matters more in today’s environment. Geopolitical fragmentation, fiscal pressures, uncertainty over inflation, technological disruption and changing correlations have increased the range of economic outcomes for which asset owners need to prepare.

The challenge for long-term investors is not to optimise a portfolio around one central forecast, but to build one that can continue meeting its objectives under different market conditions.

This is changing how investment opportunities are assessed. Rather than start with how much to allocate to a particular asset class, more investors are starting with the outcome required from the portfolio – whether growth, capital preservation, inflation protection, liquidity or diversification – and then considering the full range of available opportunities.

Schroders’ Global Investor Insights Survey 2026 provides evidence of this shift. It gathered responses from 1,025 financial professionals globally, including 185 institutional investors in the Asia-Pacific.

Half of these Apac respondents said that they use a combined framework when considering public and private equity opportunities, rather than assess them separately.

Still relevant, but no longer the starting point

This does not mean the differences between public and private markets have disappeared. Liquidity, valuation frequency, transparency, control rights, implementation time scales and governance requirements remain materially different.

In fact, considering the two markets together can make those differences more important. When asked how the relationship between public and private equity markets is changing, 42 per cent of Apac institutional respondents said that liquidity differences are becoming more significant.

Forty-one per cent pointed to the increasing flow of institutional capital into private equity; 40 per cent expect equity investing to become more active and unconstrained in public and private markets.

Public and private labels therefore continue to describe important investment characteristics. But they are becoming less useful as the main framework for allocating capital. Those characteristics should inform investment decisions rather than determine them from the outset.

Towards total portfolio thinking

This is consistent with the principles of a total portfolio approach (TPA). TPA starts with clearly defined objectives for the fund as a whole and assesses each investment by its expected contribution to those objectives.

Opportunities compete for capital in a portfolio, not only against investments within the same asset-class allocation.

Several leading Apac asset owners, including GIC, NZ Super Fund and Australia’s Future Fund, have developed versions of this approach. Other asset owners are increasingly considering the elements they can apply within their own governance and investment structures.

This requires a consistent way of comparing different investments. Looking at exposure to growth, inflation, credit, currency and liquidity risk can help investors compare investments that may look very different, but are in fact influenced by similar underlying return drivers.

Consider an institutional investor seeking resilient income. Public investment-grade credit, infrastructure debt, asset-backed finance and private credit may all be candidates. They differ significantly in liquidity, structure and implementation, but they may be competing for the same role in the portfolio.

The decision is not which asset-class allocation still has capacity. It is which exposure makes the greatest contribution to the overall portfolio after accounting for risk, liquidity, fees and implementation complexity.

Resilience needs a total portfolio view

This becomes particularly important when the objective is portfolio resilience.

The joint drawdown in public equities and bonds in 2022 showed the risk of assuming that historical asset-class correlations will remain stable. It also showed why reported volatility cannot be the only measure of risk.

Private assets may show smoother valuations because they are priced less frequently, but that does not mean their underlying economic risk is lower.

A total portfolio view needs to look beyond differences in valuation approaches to identify the underlying risks that may connect seemingly different holdings.

Liquidity also needs to be considered at the portfolio level. It is not simply a characteristic of an individual investment, but a finite resource.

Asset owners need sufficient liquidity to meet liabilities, capital calls and collateral requirements, to rebalance after sharp market moves, and to take advantage of opportunities in times of stress.

The interaction between public and private exposures is therefore central to resilience. Public assets can provide liquidity and the ability to adjust exposures quickly. Private assets can provide access to different return sources, structures and long-term cash flows.

The important question is how they work together in the portfolio.

The challenge of implementation

The investment logic of taking a TPA is clear. But implementation is harder.

Many institutions still have investment teams, committee mandates, risk systems and reporting structures organised around traditional asset classes. An opportunity spanning public and private fixed income markets can therefore raise practical questions about who owns the decision, where the capital comes from, how the risk is measured and how performance is assessed.

Moving towards a TPA requires more than the ability to invest in public and private markets. It requires governance that allows opportunities to be compared and funded across traditional boundaries, supported by comparable data, clear ways of comparing competing investment opportunities and clear delegation.

The public-private distinction will not disappear, nor should it. Liquidity, valuation, transparency and implementation will continue to matter. But these characteristics should inform the allocation decision rather than define its starting point.

The writer is head of client group, South Asia and global official institutions in Schroders