Weigh the return potential and risks of private versus public market exposure within a long-term strategic allocation

Private markets can add an illiquidity premium, returns from manager skill and access to companies that are not listed. The costs are illiquidity, uncertain timing of capital calls and distributions, leverage, concentration and valuation lag. Manager returns are widely dispersed, so the choice of manager matters more than in public markets. Reported volatility and correlations are smoothed, so unsmooth them before any mean-variance optimisation, or the model will overweight private assets. Size the illiquid sleeve against the client's liquidity needs, then reach and hold the target through commitment pacing across vintages. A good recommendation also covers the denominator effect: when public markets fall, the private share rises above target, and rebalancing is slow and costly.