Skip to main content

Investment Strategy

Navigating 2025: The Case for Private Assets in a Changing Market

July 10, 2025

If you paused the market today, you’d think it had been a smooth ride.

Stocks at all-time highs, volatility contained, inflation cooling. But that still frame hides just how much motion there’s been behind the scenes. The first half of 2025 has packed in drawdowns, policy surprises, War and Peace and more than a few macro head-fakes. On April 2nd, or “Liberation Day”, we saw one of the largest single-day trading volumes in U.S. equity market history. The two-day drop following, from April 3rd and 4th, was the fifth largest since 1950. [ 1 ] The markets look calm, but the narrative has been anything but.

The midway point of the year presents a natural moment to reflect on the macro environment, market dynamics, and how our investment megatrends are playing out across our portfolio.

We continue to see solid—though moderately decelerating—economic growth, alongside a steady decline in inflation. While current data has not yet reflected a pass-through of recent tariffs into consumer prices, we expect upward pressure on goods inflation to materialize at some point. Encouragingly, two major inflationary forces are easing and should help offset that risk. Shelter costs have slowed to their lowest levels since November 2021, while wage growth continues to moderate- an important development for roughly 30% of the inflation basket tied to services, which are especially sensitive to labor costs. [ 2 ] Taken together, the data should clear the way for the Fed to resume interest rate cuts in the second half of the year.

Consumer and business sentiment have been reactive to headlines, particularly surrounding trade tensions and geopolitical conflict in the Middle East.

But the news cycle hasn’t matched the fundamentals on the ground. Data from a subset of our portfolio companies continues to tell a steadier story. Freight volumes have normalized faster than expected, and across industrial, orders, pricing and volumes remain resilient despite the trade tariff uncertainty. [ 3 ] Labor markets are broadly stable: hiring intentions have been pulled back, but layoffs remain minimal. [ 4 ]

Public markets have responded positively to solid economic data and signs of progress on trade negotiations. The S&P 500 closed out June at an all-time high. However, current valuations appear to reflect little concern for lofty valuations in this environment. The S&P 500’s Shiller CAPE ratio now stands at ~35x—its 97th percentile since 1881. [ 5 ] Historically, entering the market at these elevated multiples has been associated with lower forward returns for public equities.

This backdrop underscores the value of private markets, which have historically outperformed across cycles, but especially in periods following high public market valuations. At current CAPE levels, private equity has delivered an average excess return of 900 basis points over the S&P 500 over the subsequent five years. At the same time, market dislocations have become more frequent and shorter-lived in recent history. Even over the much shorter window from 2022 to 2025, rolling three-year periods have already seen 65% more dislocations than the entire 1995–2022 period, while the duration of disruptions has dropped by 55%, suggesting a more reactive environment. This trend highlights the importance of diversification and the flexibility to respond quickly when opportunities arise. Possessing capital and the ability to act during short periods of volatility is crucial, and benefits private market managers, as these moments often create unique opportunities where private markets can step in.

More Frequent and Shorter-Lived Dislocations Underscore the Potential Need for Diversification and Flexibility [ 6 ]

Number of Dislocations
3-yr avg (1995-2022) vs total (2022-2025)

PENDING




Average Duration of Dislocations
(days)

PENDING

A portfolio diversified across asset classes—spanning both public and private markets—can potentially deliver higher returns with lower volatility, particularly in today’s uncertain environment.

Whether growth- or income-focused, portfolios that incorporate alternatives have historically shown compelling long-term performance: 10-year annualized returns are 33% higher with 53% less volatility for growth strategies, and 47% higher returns with 39% lower volatility for income strategies. [ 7 ]

Private equity continues to offer access to a broader opportunity set as the number of publicly listed companies in the U.S. has declined by 40% since 1996. Skilled private equity managers can take a long-term view, drive operational improvements, and unlock growth in ways that public investors often cannot. Adding private real estate and private credit can further enhance portfolio construction—potentially delivering higher-yielding income streams, reducing correlation to public markets, and offering tangible downside protection. Infrastructure investing, both through equity and credit, opens access to secular growth in areas like digital infrastructure, utilities, and energy.

Solving the 40% Problem

A number of structural and macroeconomic factors today support the case for diversifying the traditional 40% fixed income allocation in a standard portfolio.

First, we are operating in a different inflationary regime. Since 2022, stocks and bonds have been positively correlated nearly 80% of the time, limiting the diversification benefits they typically provide. Historical analysis shows that when monthly CPI readings are at or above 2%, stock-bond correlations tend to turn positive—undermining the traditional 60/40 portfolio structure.

60/40 Portfolio is Challenged in the Current Environment

Bonds Down 40% from Their 2020 Peak [ 8 ]
(Barclays US Long Treasury Index)

PENDING



Stock-Bond Correlation Positive ~80% of the Time [ 9 ]
(2022 – Present)

PENDING

Second, we are transitioning out of a multi-decade bond bull market, during which interest rates steadily declined from over 16% in the 1980s to near zero pre-2021.

The Fed’s use of quantitative easing following the GFC suppressed yields and bolstered bond returns. Looking ahead, interest rates are more likely to remain range-bound as the Fed continues to reduce its balance sheet, which may limit the upside potential of traditional fixed income.

Meanwhile, the evolution of credit markets presents compelling alternatives. Private credit offers structural advantages—most notably insulation from daily public market volatility. During recent bouts of market stress surrounding Liberation Day, public spreads widened to levels not seen since COVID, while private credit markets remained active and were able to provide necessary capital to borrowers. These assets, often floating rate, help mitigate interest rate risk, and skilled underwriting provides a buffer against credit risk. The asset class is also expanding into high-growth sectors like energy, digital infrastructure, and transportation, with cash-flow-backed structures such as asset-backed financing.

Importantly, these strategies can offer downside protection, low correlation to public markets, and consistent income – helping support portfolio resilience. With implied bond market volatility up 40% since the Fed began raising rates, the case for broader diversification beyond traditional fixed income has only grown stronger.

Finally, thematic investing remains a cornerstone of our approach. Our ability to identify megatrends early—whether in AI, power, the digital economy, or life sciences—is enhanced by Blackstone’s position as the world’s largest alternative asset manager. This unique access allows us to detect trends before they appear in official data, positioning us ahead of the curve across cycles.

Read A Mid-Year Megatrends Update

Back to The Connection

Stay up-to-date

Sign up for our latest insights and firm announcements.

Please fill out this field.
Please fill out this field.
Please fill out this field.
Please fill out this field.
Please fill out this field.

You have successfully submitted your information

Bloomberg, as of April 4, 2025. Based on S&P 500 returns.
US Bureau of Labor Statistics, as of May 31, 2025.
BX Portfolio Operations, Carrix Freight Traffic Volumes and BX Industrial Company Price & Volume Index, as of May 31, 2025.
BX Portfolio Operations and CHRO survey reflecting responses from 64 Americas portfolio companies (~183k CHROs) as of June 30, 2025, largely with Blackstone’s Private Equity (including BXG/BTO), Private Infrastructure, Private Real Estate and Private Credit businesses. The responding portfolio companies are not necessarily a representative sample of companies across Blackstone’s portfolio and the views expressed do not necessarily reflect the views of Blackstone. The views expressed reflect the respondent’s views as of the date of their responses, and Blackstone does not undertake any responsibility to advise you of any changes in such views.
Bloomberg and Standard & Poor’s. “S&P CAPE Shiller P/E Ratio” is the price earnings ratio is based on average inflation-adjusted earnings from the previous 10 years. Historical sample size extends from January 31, 1980 through May 2025. Current S&P 500 CAPE Shiller is as of May 31, 2025.
Bloomberg, CBOE, BofA Merrill Lynch, and J.P. Morgan. Equity, rate, and foreign exchange volatility represented by the VIX Index, MOVE Index, and J.P. Morgan Global FX Volatility Index, respectively. Note: Periods represent five-year intervals based on June month-end observations. Dislocations are defined by periods when equity, rate, or FX volatility are 2 standard deviations above long-term averages.
Annualized returns and volatility are calculated based on the quarterly returns over the 20-year period from September 30, 2004 to September 30, 2024.
Bloomberg Barclays US Long Treasury Index as of May 30, 2025.
Bloomberg, as of March 31, 2025. Based on monthly returns from January 2022 to March 2025 between the S&P 500 Index (stocks) and Bloomberg US Treasury index (bonds).

Important Disclosures

This commentary does not constitute an offer to sell any securities or the solicitation of an offer to purchase any securities. This commentary discusses broad market, industry or sector trends, or other general economic, market or political conditions and has not been provided in a fiduciary capacity under ERISA and should not be construed as research, investment advice, or any investment recommendation. Past performance does not predict future returns.

The views expressed in this commentary are the personal views of the authors and do not necessarily reflect the views of Blackstone. The views expressed reflect the current views of the authors as of the date hereof, and neither the authors nor Blackstone undertake any responsibility to advise you of any changes in the views expressed herein.

Blackstone and others associated with it may have positions in and effect transactions in securities of companies mentioned or indirectly referenced in this commentary and may also perform or seek to perform services for those companies. Blackstone and others associated with it may also offer strategies to third parties for compensation within those asset classes mentioned or described in this commentary.
 
Investment concepts mentioned in this commentary may be unsuitable for investors depending on their specific investment objectives and financial position. Tax considerations, margin requirements, commissions and other transaction costs may significantly affect the economic consequences of any transaction concepts referenced in this commentary and should be reviewed carefully with one’s investment and tax advisors. All information in this commentary is believed to be reliable as of the date on which this commentary was issued and has been obtained from public sources believed to be reliable. No representation or warranty, either express or implied, is provided in relation to the accuracy or completeness of the information contained herein.