Global diversification has long been a cornerstone of public market investing, helping investors reduce overall portfolio risk and smooth returns. As global markets have expanded relative to the U.S., opportunities for diversification have increased.
During this period, private markets have grown substantially, driven by institutional investors seeking higher returns and greater diversification. Like public markets, private markets are geographically diversified, with North America accounting for over 50% of the overall market and strong growth in Asia-Pacific and Europe.
However, achieving diversification in private markets may be far more challenging. This is because private assets are illiquid, information about private funds is often opaque, and regional fragmentation adds further complexity.
This article explores the benefits and risks of global diversification in private markets, providing data-driven insights and actionable strategies. It also addresses a critical question: “How can individual investors effectively diversify their private markets portfolios globally if they do not have the experience and access required?”
The Benefits of Global Diversification: Past, Present, and Future
Harry Markowitz was reported to have said that “diversification is the only free lunch in investing.” In his 1952 paper, “Portfolio Selection,” the Nobel Prize winner demonstrated that by combining assets that do not perfectly correlate with each other, investors can reduce the overall risk of the portfolio. In 1974, Bruno Solnik applied Markowitz’s theory to international investing in his article “Why Not Diversify Internationally?” In the article, Solnik demonstrated that because asset returns across countries are not perfectly correlated, investors could lower portfolio risk – and potentially enhance returns – by investing internationally.
Throughout the early 1970s, U.S. investors allocated an estimated 2–3% of their portfolios to international markets. By the time of the Global Financial Crisis (GFC) in 2007, that figure had grown to nearly 30%.
Since the late 1990s, however, U.S. and international equities have become more highly correlated, reducing the apparent benefits of diversification. This was particularly seen during the financial crisis, when most markets moved in tandem. Since then, U.S. investor allocations to international equities have declined to just over 20%, likely due, in part, to increased global market correlations combined with the significant outperformance of U.S. equity markets relative to their peers.
While the correlations among markets have remained high, shifting trade patterns and the realignment of supply chains could lead to a reversal of globalization trends and a decoupling of financial markets. If these shifts are significant, the benefits of international diversification might become more pronounced once again. As allocations to private markets grow, this could bring renewed attention to the role of global diversification in private investments as well.
The Case for Global Diversification in Private Markets
Private markets offer distinct opportunities and characteristics that set them apart from public markets. These differences span asset classes, company sizes, growth potential, and the types of projects and strategies available. This section first highlights specific segments where private markets can provide diversification benefits to investor portfolios, then examines how different geographic markets can emphasize those segments.
Venture Capital (VC): Private markets are the primary domain for venture capital, which focuses on early-stage, high-growth companies. Public markets do not provide exposure to this asset class, as these companies are typically too small or not yet profitable enough to list on stock exchanges.
Private Equity (PE): Private equity primarily provides access to buyouts, growth equity, and distressed investments in small-to-mid-market companies (valued at US$10 billion or less). This segment represents only a small portion of public equity markets.
Real Estate (RE): While public markets offer REITs (Real Estate Investment Trusts), private markets provide direct access to a broader range of real estate investments, including core, core-plus, value-add, and opportunistic strategies. Similar to private equity, private real estate substantially expands the pool of available assets, creating meaningful diversification benefits.
Infrastructure: Private markets offer investments in essential infrastructure assets such as renewable energy projects, transportation networks, and digital infrastructure. These companies and projects provide a wide range of expected investor returns, which may be materially different than those found in the infrastructure sector of public markets.
Private Credit: The largest segment of private credit, direct lending, shares similarities with Broadly Syndicated Loans (BSLs) available to public market investors through “bank loan funds.” However, private credit primarily serves smaller companies and is expanding into other segments, such as asset-based financing, which we think will present investors with unique opportunities not found in public markets.
Geographic Regions Offer Different Market Opportunities
One of the most compelling reasons to diversify globally in private markets is the ability to tap into unique opportunities across regions. Each market offers distinct advantages, shaped by local economic dynamics, innovation trends, and sector-specific strengths. By strategically allocating across these regions, investors may be able to build more resilient portfolios with attractive return potential.
Below, we explore the key opportunities in the United States, Europe, and Asia:
United States: Innovation and Mature Buyout Markets
The U.S. private market landscape is defined by its depth, innovation, and robust governance frameworks. Strong shareholder protections and transparent regulatory frameworks make the U.S. a potentially attractive destination for global investors looking to de-risk their portfolios while maintaining growth exposure. Key segments of the market include:
- Venture Capital: The U.S. remains a global leader in cutting-edge technologies, supported by a culture of innovation and strong R&D ecosystems.
- Buyouts: As the world’s most mature buyout market, the U.S. offers a range of value-creation strategies, spanning small- and mid-market companies to mega-buyouts.
The U.S. provides a balance of stability – through its large buyout, real estate, and private credit markets – and high-growth potential from its deep venture capital and growth equity segments.
Europe: Leadership in Renewable Energy and ESG Investing
Europe offers a mix of industrial strength, regulatory sophistication, and leadership in sustainability. Key market segments include:
- Renewable Energy and Infrastructure: Europe is at the forefront of the global energy transition, with significant investments in wind, solar, and other renewable energy projects.
- Industrial and Manufacturing Base: The region’s strong industrial heritage and advanced manufacturing capabilities provide a solid foundation for growth equity and buyout opportunities.
- ESG Leadership: Europe’s advanced regulatory frameworks and commitment to environmental, social, and governance (ESG) principles make it an attractive destination for impact-focused investors.
Europe serves as a strategic complement to allocations in Asia and the U.S., offering stability, sustainability, and long-term growth potential.
Asia: A Hub for Venture Capital and Emerging Trends
In 2023, Asia accounted for 46% of global venture capital (VC) allocations, making it a key region for investors seeking high-growth opportunities. Despite recent market contractions in China’s VC sector, Asia’s long-term potential remains strong, driven by:
- Innovation Hubs: China, India, and Southeast Asia are home to thriving ecosystems in fintech, e-commerce, and green energy.
- Rising Consumer Spending: Increasing disposable incomes and digital adoption are fueling growth in consumer technology.
- Green Energy Transition: Governments and corporations across Asia are accelerating investments in renewable energy and clean infrastructure.
For Western investors, Asia presents a strategic avenue to diversify beyond domestic markets and gain exposure to high-growth sectors that are underrepresented in their home regions.
The Challenges of Diversifying in Private Markets
Illiquidity
Unlike public markets, where investors can quickly reallocate capital in response to geopolitical or economic changes, private markets are inherently illiquid. Most investors recognize the risks of traditional drawdown funds, including unpredictable capital calls and the need to reinvest unexpected proceeds from fund dispositions. However, they often overlook the opportunity costs associated with not being able to adjust their investment strategy in response to broader market changes, such as geographic rotations.
Institutional investors have a few significant advantages compared to individual investors in mitigating illiquidity risk. One is access to a deep secondary market for private funds and co-investments, which allows them to sell assets that no longer align with their strategic investment priorities. Another is access to co-investments and having staff expertise to execute on those opportunities. In addition to generally having lower costs than fund investments, co-investments allow institutions to quickly deploy capital in line with their strategic goals.
Opaqueness of Information
The lack of transparency in private markets is a well-documented challenge for investors. Unlike public companies, which must regularly disclose financial and operational data, private companies and fund managers are not subject to the same regulatory requirements. They are also often bound by strict confidentiality agreements that prohibit the disclosure of such information. This opaqueness complicates due diligence, risk assessment, and manager selection, requiring investors to adopt specialized strategies to navigate these challenges and make informed investment decisions.
Institutional investors navigate this challenge by building local teams to gain on-the-ground insights, leveraging networks to establish relationships with local managers, and conducting extensive independent research and reference checks. Many track prospective managers for years before committing capital, ensuring informed decision-making despite limited public data.
Regional Fragmentation
Investing globally requires navigating varying regulatory frameworks, market dynamics, and cultural nuances. Private markets in different regions have distinct asset class allocations, reflecting their unique strengths:
Asset Allocations Within Regions
| REGION (% total mkt) | Buyout | Venture Capital | Growth + Other | Private Credit | Real Estate | Infra. + Nat. Res. |
|---|---|---|---|---|---|---|
| North America (54%) | 32% | 17% | 14% | 13% | 14% | 10% |
| Europe (20%) | 36% | 9% | 7% | 15% | 16% | 17% |
| Asia (22%) | 14% | 48% | 24% | 4% | 7% | 5% |
| Rest of World (5%) | 15% | 20% | 21% | 10% | 12% | 23% |
However, fragmentation within each region adds complexity for investors. In North America, for example, the U.S., with the world’s largest economy and most mature private markets industry, has over 2,000 private fund managers overseeing more than 40,000 funds (excluding hedge funds). Many of these are small firms managing a handful of funds that can have niche strategies. For foreign investors, the ability to track and diligence this vast ecosystem is a challenge. Similarly, Europe and Pacific Asia consist of multiple local markets with differing legal and regulatory environments, requiring deep regional expertise for effective investment strategies.
Summary of Challenges
The inherent complexities of private markets become even more pronounced when investing across regions such as the U.S., Europe, and Asia, presenting unique challenges for investors on both sides.
For U.S. investors, navigating Europe and Asia means contending with a patchwork of regulatory regimes, cultural nuances, and market dynamics – such as Asia’s dominance in venture capital and Europe’s emphasis on infrastructure. Conversely, Asian and European investors must sift through the vast array of strategies and managers in the U.S., the world’s largest and most mature private markets ecosystem.
These challenges are further compounded by the illiquidity of private markets, which makes it difficult for investors to rotate between markets or strategies once capital is committed.
Additionally, private markets remain largely a small-to-mid-cap arena, where return dispersion is significantly higher than in public markets. This heightened variability raises the stakes for selecting the right – or wrong – manager or market, with profound implications for portfolio performance. Success in cross-regional private markets investing, therefore, requires deep local expertise, rigorous due diligence, and a long-term commitment to building relationships and understanding each market’s unique dynamics. As private markets continue to expand globally, the ability to navigate these complexities will increasingly separate top-performing investors from the rest.
Key Considerations for Individual Investors
It is difficult to find data that specifically tracks the global diversification of private market portfolios managed by large institutional investors. However, based on our own experience and industry reports, we know that institutions have expanded their private asset allocations to global markets. Many have done so by building sizable local market teams or by utilizing the advice of global consulting firms with deep staffs and local market presence.
How can individuals who lack the staff and resources of large institutions achieve the expected benefits of this diversification? We see two primary approaches:
- Investing with the most experienced local managers in traditional drawdown funds.
- Investing in semi-liquid vehicles that allow investors to exit quickly during stable market conditions.
Investing with Experienced Local Managers
Selecting private market managers requires careful evaluation of their track records, sector focus, competitive advantages, and alignment of interests. When considering non-domestic managers, investors must go further – analyzing their local market presence, length of time in that market, size of the firm, and institutional support. In particular, we think that investors should look for managers with the following characteristics:
- Local Teams and On-the-Ground Presence: Managers with dedicated teams in their target market(s) and those that have strong local networks. Remote operations can lead to missed opportunities and misjudged risks.
- Length of Time in Market: Managers with long (10–20 years or more) track records demonstrating resilience across economic cycles. While newer managers may offer innovative strategies, they may lack experience navigating economic downturns.
- Size of Firm: Managers with at least $10 billion in private assets under management in the relevant strategy, signaling market success. Be mindful, however, that the largest firms may not be able to focus on smaller, high-potential transactions that may be immaterial to their funds.
- Significant Capital from Institutional Investors: Managers backed by reputable institutional investors (e.g., pension funds, sovereign wealth funds), as their rigorous due diligence signals credibility.
Fund of Funds
Many investors prefer to invest directly in funds rather than through fund-of-fund (FOF) vehicles, which allocate capital across multiple managers. But for global allocations, the additional costs associated with FOFs may be justified, as they reduce single-manager¡” risk and can provide access to elite managers cultivated over many years. Naturally, while FOFs provide tangible benefits, investors must still apply the same diligence discussed above when selecting non-domestic managers.
Investing in Semi-Liquid Vehicles
While traditional closed-end funds remain a cornerstone of private markets, new investment vehicles have emerged, expanding access for high-net-worth and retail investors. These vehicles, which go by several different labels, including “semi-liquid,” “evergreen,” or “interval” funds, may be especially useful to those investing outside of their domestic market.
Semi-liquid funds are private funds marketed to individual investors and generally offer low minimum investment amounts and periodic redemption options. These features make them an appealing way for individuals to globally diversify their private market portfolios since they can avoid large commitments and rotate their capital from region to region as their investment strategies change. However, as seen with some large semi-liquid funds in recent years, investors need to be aware that managers can halt distributions if redemption requests exceed available liquid capital. This can leave investors unable to access their capital when they need it most or when they wish to shift strategies.
As stated before, sound manager selection is essential for investors to achieve their return expectations without taking unnecessary risks. Even with the ability to exit periodically, investors should apply the same level of diligence to semi-liquid fund managers as they would to traditional drawdown funds.
Charting the Future of Global Private Markets Portfolios for Individuals
While global public markets have become more correlated, that dynamic could shift as global leaders examine trade relationships and foreign and overseas investments. In a less correlated global economy, the benefits of international diversification may increase. We have not found any research that specifically looks at the benefits or risks of global diversification within private market portfolios, but we believe that as investors allocate more of their capital to private assets, this will become an important area of focus for academic and industry researchers.
Until more data emerges that can inform individual investors about the impact of global diversification within their private market portfolios, we recommend that they carefully watch broad market trends and their different effects on regions. Bain & Co.’s 2025 Global Private Equity Report is a good starting point for many. Tracking regional investment performance is also a good way to evaluate how a geographically diversified portfolio might perform. S&P Global, in collaboration with Cambridge Associates, provides useful performance data across private asset classes, such as its 2023 Private Markets Review.
For now, most individual investors have only small private market allocations, making an immediate decision on global diversification less pressing. However, as these allocations increase, developing a deep understanding of the potential benefits and risks will enable more informed decision-making at the right time.
Steve was formerly the Chief Investment Officer and Head of Private Markets at Manulife Investment Management. In this role, he was responsible for leading global investment teams across a wide range of asset classes, including private equity and credit, real estate, infrastructure, timber, and agriculture. Steve has served as a director of many public and private companies during his career, including two of Manulife’s U.S. SEC-registered investment advisors.
Myron Zhu
Myron Zhu is a private markets executive with 27+ years of experience in private equity, real estate, infrastructure, and private credit across Hong Kong and New York. As Head of Private Markets, Asia at Manulife Investment Management, he built the Asia private markets business from zero to $10 billion in AUM within five years, driving acquisitions, partnerships, fundraising, and risk management.
Previously, he held senior roles at Aberdeen Standard Investments, JPMorgan Chase, and DBS Bank, delivering top-quartile returns and innovative solutions. Myron holds an MBA from the University of Pennsylvania, a B.S. in Computer Science from UT Austin, and is a CFA charterholder. In addition to his executive roles, Myron is currently a member of the International Advisory Board of the University of Texas at Austin.
Important Notice: Private Markets Navigator does not provide investment advice, and the information should not be construed as such. Investing in private asset funds is risky, with potential for total loss and long-term liquidity restrictions. Read our full dislaimer.
