Are Public Markets Enough for Growth?
Today, shifting macro forces and volatility are eroding return expectations. At the same time, public company investment opportunities are declining, creating headwinds for 60/40 portfolios. When constructing a growth portfolio, investors need to look beyond the public markets for differentiated sources of value creation.
American Public Companies Compared to the Number of Private Companies with 50+ employees
The Shrinking Public Market
Since 2000, the number of publicly listed U.S. companies has declined by nearly 50%, even as private companies with over $100 million in revenue have multiplied. Limiting growth portfolios to public markets means ignoring a vast and growing share of the economy.
Concentration in Public Indices
U.S. public markets are heavily concentrated in technology, which may lead to increased portfolio volatility. Private markets capture the significant corporate value creation that now occurs long before companies go public.
Overcoming Structural Barriers
Access to private markets was once limited to institutions. New evergreen fund structures now allow wealth professionals to integrate these exposures directly into client portfolios.
U.S. Bureau of Labor Statistics, World Bank, KKR. As of December 31, 2024. Note: The number of private firms includes those firms with more than 50 employees. For more info, please see our focus on Private Equity in KKR’s Regime Change series.
Growth Portfolio Framework
The growth portfolio framework's goal is to increase overall portfolio returns. The portfolio shifts 15% of the Public Equity allocation into Private Equity, and 15% of Public Bonds into higher returning private asset classes. The framework is designed as an illustrative starting point rather than a prescriptive solution and should be adapted to align with each client’s individual objectives, risk profile, and investment horizon.
How Does the Growth Portfolio Compare to the 60/40?
The growth portfolio framework historically delivered an additional 50 basis points of return annually compared to the traditional 60/40, while still maintaining 70% of the portfolio in liquid assets. One hundred dollars invested from 2005 to 2024 grew to $555, compared with $464 for a traditional 60/40 portfolio.
Growth Portfolio Allocation Breakdown
Compared to the capital preservation and income model portfolio frameworks, the growth portfolio has the highest overall equity allocation, and by a significant margin, the highest allocation to Private Equity.
PRIMARY GROWTH DRIVER
Private Equity, 15%
Private Equity invests in unlisted companies then drives outperformance through value creation. Unlike passive strategies, it leverages active management, sustained operational improvements, and thoughtful portfolio construction to create value inaccessible to traditional investors.
Key Characteristics:
- Active Value Creation: Driving operational improvement
- Broader Access: Investing in unlisted companies
- Long-Term Focus: Multi-year value creation
YIELD STABILIZER
Private Credit, 5%
Private Credit replaces a portion of the traditional bond allocation seeking to generate higher yields. It sits senior in the capital structure to provide the potential for downside protection, while floating-rate structures offer a measure of natural hedging against rising interest rates.
Key Characteristics:
- Senior Capital Structure: Prioritized repayment vs. equity
- Enhanced Yields: Premiums over public fixed income
- Rate Protection: Floating-rate structures
DEFENSIVE MOAT
Infrastructure, 5%
Infrastructure targets essential services with high barriers to entry, such as energy and digitalization networks. Within the growth portfolio, these assets can provide exposure to secular growth trends while offering inflation-linked cash flows.
Key Characteristics:
- Essential Hard Assets: Critical services (e.g., power, data)
- Defensive Moats: High barriers to market entry
- Inflation Linkage: Contractual cash flow escalators
INFLATION HEDGE
Real Estate, 5%
Real Estate offers advantages including potential inflation hedging and tax benefits from depreciation. High demand in key sectors supports value creation through both equity appreciation and collateral-based cash flows.
Key Characteristics:
- Inflation Hedge: Hard asset value preservation
- Tax Efficiency: Benefits from asset depreciation
- Collateralized Income: Cash flows backed by property