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Private asset managers can expect to work harder for LP capital as allocators increasingly look for more bespoke, flexible fund structures that meet their changing needs around liquidity, fee and types of investment exposures.

Blue Owl Capital, which manages $295 billion on behalf of clients, is acutely aware that narratives around private investments are changing.

“A lot of us [private markets managers] have had this 40-mile per hour tailwind behind our back since the financial crisis, where money has essentially been free and it’s been underallocated to private markets,” Blue Owl global head of institutional capital, James Clarke, told the Fiduciary Investors Symposium at Oxford University.

“They’ve essentially treated their clients like a piñata that they hit with a stick until the money comes out – that’s not good enough anymore, because the wind has changed and it’s in our face.”

It’s now more critical than ever that managers do the work and understand allocators’ goals around liabilities and performance for the bespoke solutions, he said. While more private asset managers are seeking new sources of capital in the wealth space, Clarke said institutional investors remain “the bedrock of any successful asset management firm”.

“They are loyal, provided you deliver good performance and provided you treat them as partners, so it’s fundamentally important,” he said.

The M.J. Murdock Charitable Trust, a US not-for-profit endowment, said it has been on a journey in the past two years to transform illiquid private markets investments into semi-liquid structures.

It moved assets out of three traditional closed-end infrastructure funds into a bespoke sleeve with the same manager in a bid to have better control of deployment pacing. It is now having similar conversations with its real estate and credit fund managers.

“We’ve created for ourselves a lot of optionality. If you’re a person of corporate finance, you know that options create value, and the more options you have, the more value,” the endowment’s chief investment officer Elmer Huh said.

“[We want to see] if we can create – not your traditional SMA (separately managed accounts), not your traditional evergreen vehicle – but something that’s much more bespoke, much more flexible, where you have the control and you can use their subscription line as a synthetic proxy of NAV financing to accelerate or delay your capital calls.

The foundation has around “pretty aggressive” private markets allocation of 66 per cent, which speaks to the value of its late founder Jack Murdock and its cultural DNA of technology and innovation.

By creating more liquid private fund structures, the foundation ensures that it can pay grants to not-for-profit partners out of its cash reserve – which amounts to around $100 million a year – and still have the option to deploy down the road, Huh said.

Changing needs of investors

Damien Webb, deputy chief investment officer of Australia’s Aware Super, said that as investors evolve, their needs as LPs also change. The fund is the third largest player in Australia’s fast-growing defined contribution system, and its assets under management have grown from A$40 billion ($26 billion) a decade ago to A$230 billion ($150 billion) today.

“We’ve had to reinvent ourselves as an organisation every five years – like fundamentally, soup to nuts,” he said. “From the chair and the board, down to the investment team, legal, tax, ops, DD, portfolio and value creation. So the reality for us is that we think about what portfolio do we want to own, and we spend a lot of time thinking about the [factor] exposures.”

“The conversation around are [private markets] funds dead, it’s really around what is the access point… For us, I think the answer then splits very much by asset class.”

For example, funds are still a significant part of Aware Super’s private equity investments, which account for eight per cent of the total fund allocation. It has a “high-alpha” approach and an appetite for first-time funds, seeking opportunities in co-investments and secondaries with deeper, more global relationships.

But the dynamic is entirely different in real assets. Over the past 12 years, Webb said that Aware Super moved from investing in core evergreen funds, to individually managed accounts and joint ventures, and finally to master relationships whereby it allocates a huge amount of capital to a single global manager. “That didn’t quite work,” he said.

The fund also operates a separate real estate platform, Aware Real Estate, which invests in Australian industrial, commercial, and retail/mixed-use sectors.

“Now we’re at point where we’re really leaning into real estate operating companies. There is still very much a role for fund managers. It’s just we usually use them for very bespoke things in that operating company, like origination or value creation or particular things,” Webb said.

But amid the changes, what remains constant is that sound relationships between LPs and GPs are the prerequisites for great investments. M.J. Murdock Charitable Trust’s Huh said the quality that the allocator wants to see above all else in GPs is “humility”.

“Every private investor has a black eye, there’s no one with a 100 per cent great track record,” he said.

“We sometimes spend anywhere from six months to three years getting to know the manager – it’s like slow dating – and it’s really hard to not spend the time and figure out where the warts are, so we want to know what’s the low point of your existence as a fund manager.

“If you don’t get a proper answer of ‘hey, I’m glad you asked that, let’s talk about that’… You kind of ran into a manager who’s just more of an asset gatherer.”

M.J. Murdock Charitable Trust has high conviction in its managers – around six firms look after 60 per cent of the portfolio. But even great relationships come to an end as the fund let go of four managers with which it has been working with for more than 25 years.

“If you have a relationship with a manager and you have to deliver bad news, there’s a high level of respect because you’re principled on why you’re leaving and what you need to do for the portfolio,” Huh said.

“In this business, it’s very hard to find those managers.”

Aziz Hamzaogullari, chief investment officer of growth equity strategies at Loomis Sayles, has urged active investors to focus on long-term consumer and enterprise demands, warning that chasing short-term market moods and toggling between “risk-on” and “risk-off” positions is ultimately a “loser’s game”.

With a declining active share in fund managers’ portfolios and trading costs, the odds are against those whose main approach to adding value is frequent trading and not taking active bets, he told the Top1000funds.com Fiduciary Investors Symposium.

“If you look at, for example, the large cap space, the best of the best managers may have a 0.3 or 0.4 information ratio, which is the excess return over the risk that you generate,” he told the symposium, held at Oxford University. “Just simple math tells you… that you have to have a minimum active share to beat the benchmark.”

“We believe that active doesn’t mean necessarily just trading but rather making very selective long-term decisions.”

These decisions include, for example, tapping into the structural demand behind aviation companies driven by consumers’ desire for luxury and travel as income rises, with consistent increases to miles flown per traveller every year and very rare disruptions like COVID-19.

“[If you follow that principle], you will do better than a portfolio with an approach based on ‘oh today is risk-on, let me just go and load up on these companies that will be higher beta’, and the next morning I’ll get more defensive – I think that’s a loser’s game,” he said.

“At least when I look empirically, I don’t see anyone who can time these things perfectly.”

A more structural view of risk also protects the portfolio in all weather, Hamzaogullari said. He noted that the Loomis Sayles research examining the performance of 281 US large cap growth equity managers found that most of its peer group tend to do well in either bull or bear markets, but never both.

This could be caused by managers implementing front-end screens that filter out assets that do not meet their bespoke criteria and therefore narrow down the investment universe, Hamzaogullari suggested, but it also causes portfolios to “be biased either to the up market and down market”.

“I think the reason is those front-end screens and not having an approach to risk that’s permanent and structural,” he said.

“As human beings, we have this hindsight bias, and we always talk about risk as if we knew it was going to happen… but in reality, most of the time people are reacting to what just happened.

“I think that mindset means that from our perspective, we want to invest in a portfolio of products and services that are not highly correlated with each other.”

Following this philosophy, Hamzaogullari said the manager does not approach an investment based on a country or regional framework but on whether it has robust business qualities – China is one such example.

“Everyone is like ‘China is investable’ or ‘China is non investable’ – even through an approach like that, I think China is a big market with a big population, and there are some excellent businesses out there that we will benefit from in the long run,” he said.

“We look at growth as being secular in nature, and we define it as cash flow growth, and we want to buy these [good companies] at a significant discount to intrinsic value.

“We make very few decisions in a given year, and that’s our selective approach to [active] investing rather than geographies.”

Europe is receiving unprecedented attention from investors who were startled earlier this year by the Liberation Day tariffs and rotated out of the US market. But a lack of integration among the fragmented European regulatory and market structures is not helping investors put their capital to work in the region, according to Apollo.

Tristram Leach, head of investments and co-head of European credit at the $908 billion manager, said there is a new impetus for change in the European capital markets, but also many speed bumps, such as the vastly different insolvency regimes and stock market regulations between nations.

“Personally and possibly for many people in this room, the Capital Markets Union is going to be very, very important,” he told the Top1000funds.com Fiduciary Investors Symposium at Oxford University, referring to the economic policy initiative that aims to strengthen European financial markets’ competitiveness. “That means allowing capital to address opportunities across Europe without some of these frankly arbitrary barriers.”

Solutions proposed so far include the introduction of a 28th regime in the European Union where businesses – and particularly small and innovative enterprises – can apply Europe-wide standards.

“Creating the environment whereby the reforms can happen is a big part of the challenge that Europe faces, because the roadmap is there,” Leach said.

“I think there’s buy-in at the Europe level and a lot of national, political elite levels, but it’s getting buy-in through electorates across elections and multiple geographies that’s really the challenge.”

In terms of specific investment themes, defence is a much-discussed subject in Europe but Leach said opportunities are likely to revolve around supply chains and partnerships with defence original equipment manufacturers (OEMs) rather than around “big national projects”.

Germany is better placed to borrow more off its sovereign balance sheet than most other EU countries, which are already debt-ridden due to the need to fund various competing objectives, he said. Germany had a debt-to-GDP ratio of 62.4 per cent at the end of the second quarter in 2025, compared to the EU average of 81.9, according to the union’s official data.

Leach said private credit is a natural source of long-dated capital for investments like infrastructure and can complement public markets. But he rejected the suggestion that private credit is inherently riskier due to its opaqueness.

“Public investing can be both risky and safe, and private investing can be both risky and safe. I would go one step further and say these days, public investing can be both liquid and illiquid, and private investing can be both liquid and illiquid,” he said.

For an asset allocator that invests in private markets, the most critical thing is the “rigour of the underwrite”, as well as knowing that they are taking on the right risk and lending to the right companies regardless of format, Leach said.

“Being able to price those things appropriately and make sure you’ve been paid incrementally for liquidity characteristics, in the same way you would for credit characteristics, is a really important part of building a sophisticated asset manager appropriate to the needs of a world where these things are not separate categories,” he said.

“Private credit is overwhelmingly, appropriately asset liability matched and it doesn’t face, say, the risk of a bank run, and generally speaking, it’s not particularly levered either.

“The idea that there is increased systemic risk from private credit… I think is a challenging line to maintain.”

President Trump’s executive order that America’s 401(k) plans invest more in private markets will take five to ten years to have an impact. Although private assets are a significant part of America’s defined benefit pension fund assets, the ability of defined contribution funds to invest in private markets is a little more complex, explained seasoned investor Michael Davis, head of global retirement strategy at T. Rowe Price, speaking at the Fiduciary Investors Symposium at Oxford University.

“I think, at the end of the day, it’s going to be a long road for private assets in defined contribution plans,” he told an audience comprising 68 asset owners from 17 countries gathered alongside global asset managers for the three-day conference.

“When I was in government, I learnt that you can kind of tilt [policy] in a direction, and eventually, it picks up speed, but it takes a while. I think the executive order will help, but I wouldn’t expect there to be a change overnight,” he said, recalling his time helping craft pension fund policy while serving under the Obama administration.

Enduring litigation issues will continue to dent plan sponsors’ enthusiasm to invest in private markets, he said. Investing in private assets incurs higher fees and will therefore attract lawsuits that particularly target fees, costs and performance.

“I experienced this myself in terms of some anxiety, because I am the head of the investment committee for our own T. Rowe Price plan. So I live some of the same anxieties that many of our clients experience,” said Davis.

Other barriers to change include low financial literacy. Although the US has higher levels of financial awareness than in other countries, he flagged that public knowledge of private assets is poor. “Even things like public assets, people struggle with.”

Liquidity is also an issue since DC investors “like daily liquidity.” However, he noted the continued evolution of liquidity-supporting private market structures and vehicles.

“We expect to see more of that innovation and I do think that this is an area that we can learn a lot from our colleagues around the world who have deployed these assets into defined contribution plans for a much longer time than the US has.”

He said private assets are unlikely to be offered as a separate option in a defined contribution plan. Instead, investors will most likely tap into alternatives via a diversified portfolio in a target date fund.

The pros and cons of legislation

America has a successful history of policy makers successfully steering the $37 trillion retirement industry in new directions.

The passage of the 1974 Employee Retirement Income Security Act (ERISA) laid the foundations for capital formation, and has gone on to fuel an industry of private asset managers characterised by hedge funds, private equity and private credit.

Davis noted that other countries are now starting to think about how to use their retirement assets as a lever to spur capital formation and local investment.

But he warned that governments need to tread a fine line between pushing for the productive use of capital and maintaining the fiduciary duty enshrined in ERISA law, which ensures plan sponsors act solely in the interest of beneficiaries. It’s a line that has got blurred in the US at times – like when unions pressured to direct assets towards creating jobs. Something that he believes has fed directly into the politicisation of ESG in the US.

Davis also talked about the importance of staying invested in an inflationary market and avoiding non-productive investments.

“If you’re in a bank account earning next to nothing, you are losing money every day.”

He suggested countries integrate a national default policy whereby beneficiaries default into a diversified pool of assets that includes growth and fixed income assets.

“Again, in a world where inflation is a bigger problem, the idea that you have big pools of people that are still investing in cash, I think is a tragedy. And the government can do something about that. In the United States, prior to 2006/ 2007 a lot of people were invested in either the stock of the company they worked for, which is not a diversified place to be, or cash. And the department did a thorough analysis to say this is not where people should be.”

Davis also argued the case for active management in today’s concentrated market.

Still, legislation in the US retirement industry has also created barriers to change and a disincentive to innovate in contrast to newer pension systems like Australia. Australia’s super funds have been able to hone in on the best concepts like automatic enrolment and centralisation, for example.

“One of the big issues in the United States is portability. So if [people] change employers, [they] have to individually take those assets. It’s a whole process to roll those assets over,” he concluded.

APG Asset Management, the largest pension fund manager in Europe, is so convinced by the advantage its regional office network brings in sourcing and running private assets, that Patrick Kanters, member of the APG Asset Management board and chief investment officer of private investments since 2023 is based out of Hong Kong.

Kanters – who stepped into the position when APG split the single CIO role into two distinct positions in capital markets and private investments – oversees some $180 billion in global real estate, infrastructure, private equity and natural capital out of APG’s Wan Chai office, home to a 95-person team around two-thirds of whom work in private markets, alongside teams in Singapore, New York and Europe.

He tells Top1000funds.com that Hong Kong is a prime location from which to proactively source opportunities for APG’s sole client ABP, as the €552 billion civil service pension fund seeks to not only increase its allocation to infrastructure (from 6.5 per cent to 10 per cent) and private equity (from 6 per cent to 8 per cent) from opportunities fanned by mega trends like the energy transition and digitisation, but also meet ambitious impact investment targets primarily sourced from private assets.

In early 2025, ABP requested APG cease asset management services for all other pension fund clients and manage money exclusively for ABP come 2030.

“It’s difficult structuring illiquid strategies at source when you fly in and fly out,” says Kanters, who joined APG as co-head of real estate back in 2005. “We serve on the boards of companies and funds we have co-created and that requires being in that time zone so you can attend board meetings ⁠– the strategic controls of these companies and funds need to be in the region.”

Moreover, Kanters believes the different worldview that comes from being based in Asia offers another valuable investment edge.

“The Hong Kong and Singapore teams have a different view of the world. All our local teams help ensure we have a more balanced perspective on the world, and they support our ability to come to less biased decisions which leads to a better performance.”

Still, for all its proximity to Asia’s largest market, APG’s biggest exposure in China sits in real estate concentrated in large investments in logistics and data centres in Hong Kong and mainland China. Outside this, Kanters says APG owns few private assets in China ⁠– private equity is limited and APG doesn’t own any Chinese infrastructure.

“China never really needed money for infrastructure because they fund it themselves,” he reflects.

Moreover, he says the Chinese real estate market is particularly tough because of thin trading, exacerbated by many US and Canadian investors backing out and liquidity drying up.

Allocating more to global private equity and infrastructure

APG began investing in global infrastructure in 2004 and the current allocation is around 6.5 per cent. To reach ABP’s new target of 10 per cent by 2030 (in line with real estate), Kanters says the team aims to allocate $3 billion a year focusing on mega themes.

Building out the private equity allocation to ABP’s 8 per cent target is easier, primarily because the fund is overweight in the asset class from the denominator effect of stellar returns from previous years.

APG will continue to venture into the secondaries market to sell private equity holdings. However, the team has pared back secondary sales compared to a more proactive strategy two years ago. Now sales are mostly confined to older vintages that won’t provide co-investment opportunities. He says APG rarely buys in the secondaries market because older fund opportunities don’t comply with the investor’s high responsible investment standards.

Unlike in capital markets, where APG has run different strategies for its different clients, the investor runs one strategy per asset class in private markets, so its multiple client base is aligned. As APG’s clients drop away (like construction industry pension fund bpfBOUW and PWRI, which has transitioned to the new pension system), APG’s private markets team is adjusting and adapting the risk-return of the portfolio to wholly meet ABP’s requirements, particularly around impact.

ABP wants to invest €30 billion in impact by 2030, primarily focused on private markets. Around €10 billion will be ploughed into the Netherlands, where the investor will focus on assets like affordable housing and investments supporting the energy transition.

Impact in private equity

Kanters observes that the biggest challenge inherent in impact investment is the absence of a single standard of what accounts for impact. It means investors must “come up with their own definition” that brings implementation challenges because GPs also have different definitions. APG has been able to build out its own impact standards off its success in responsible investment and by comparing notes with other responsible investors also investing for impact. “Standards will ultimately become more aligned,” he says.

Next, sourcing and committing to private equity funds focused on impact is complicated because although there are more, newer funds, they lack long track records. Moreover, investing in a fund means APG has less control over impact because the fund manager has discretion to put the money to work.

The clock is also ticking. Unlike real estate and infrastructure, where investments are typically 10-15 years, the private equity team is under pressure to invest money as assets materialise because they are held for a much shorter time. “We need to keep re-investing at a much higher pace in private equity,” he says.

Fortunately, it is easier to integrate impact in co-investment where the private equity team targets 40 per cent of the portfolio split across all regions, of which the US is the largest, followed by Europe and APAC. “Private equity co-investment and impact investing is a strong focus. We can select the investments that fit best, comply with our responsible investment requirements and lower costs.”

Impact in infrastructure

When it comes to achieving impact in infrastructure, success depends on APG’s ability to build new assets like renewable energy and transmission infrastructure.

“It’s not about buying existing assets, but about developing and adding new assets that support the energy transition,” he says.

Success requires capping development risk and negotiating fixed price development agreements and long-term power price agreements to ensure stable and predictable returns.

The team learnt valuable lessons during the pandemic when development risk in new real estate assets, including the spike in commodity prices and inflation, delayed construction. “In some ways, it was a perfect storm. We learnt a lot, particularly around mitigating development risk and sharing it with the partners involved,” he says.

He also espouses the importance of ensuring the ability to sell an asset when investing alongside others in consortia. In big ticket infrastructure, APG aims for a large minority position and therefore often invests alongside other asset owners like Omers Infrastructure, New Zealand Super and Japan’s Government Pension Investment Fund, amongst others.

An exit strategy must always be in the small print even when partnering with long-term, like-minded investors and with no initial intention to sell.

“Allocations might need to be increased or decreased, and also our long-term partners’ strategies can change,” he concludes.

A lot of words have been written to explore what risk is and we are responsible for some of them. Here we make the case that risk looks different to different models of reality. Sometimes understanding is illuminated by considering what something is not. So, risk is not historic volatility, and it’s about not knowing. The future is fundamentally hidden – we just don’t know.

Turning to what risk is, for us it is mostly about a permanent impairment to mission. If an outcome has the potential to compromise our ability to meet our mission, then we are facing considerable risk. If, instead, it is merely unwelcome, uncomfortable and stressful then either we have enormous buffers, or our risk management is excellent. When thinking about risk, context matters.

Models of reality

We have previously written about the need to build models of reality. Reality is too big and too complex to understand, and so we build models – simplifications. As simplifications these models will be wrong, but many of them are useful. Once upon a time we modelled the solar system with the Earth at the centre. This was wrong but useful enough for its time. However, if we had failed to update this model our subsequent attempts at space exploration would have been far less successful. By analogy, we are arguing that we need to update from risk 1.0 to risk 2.0. These are built on different models of reality, as we explore below.

Risk 1.0

The origin story of risk 1.0 starts with Harry Markowitz in 1952. From this point flows the tools (eg mean-variance optimisation, capital asset pricing model etc) and theories (eg modern portfolio theory, separation theorem etc). However, all of it is based on a particular model of reality which is no longer fit for purpose.

Classic economics built a model of reality, and derived laws to explain the behaviour of that model. Within the model, we could perform calculations and make predictions, while deviations of the model from observed reality could be explained as ‘exogenous shocks’ (originating outside the system). Risk model 1.1 was essentially a Gaussian log-normal distribution combined with the knowledge that we would be hit from time to time by unknowable and unquantifiable shocks. We have now risen up the rungs of this ladder to risk model 1.x, which is ‘Gaussian with very sophisticated modifiers’. The modifiers can change the shape of the tails of the distribution, and seek to bring into the model as much of the external shocks as possible. In truth, leading edge risk management under risk 1.0 is genuinely impressive. However, it has been unable to address one problem – namely that the ladder is leaning against the wrong wall.

Risk 2.0

If you will forgive us the conceit, we will suggest that the origin story of risk 2.0 starts in 2012. In The wrong type of snow, figure 02 compares ‘risk 1’ with ‘risk 2’. Back then, we already believed that the world was best understood as a complex adaptive system. Since then, we have observed:

continued growth in complexity, with its associated demands for greater information processing (part of the ‘great acceleration‘)
a dramatic rise in concern over, and attention given to, climate change
an adverse shift by climate scientists in terms of their expectations of where climate tipping points lie (ie at lower levels of temperature increase than previously anticipated)
that we are now in breach of seven of the nine planetary boundaries
growing geopolitical risks.

In addition, our thinking on systemic risk has developed considerably.

Again, for the sake of brevity, we will here only address two concepts relating to complex systems. The concepts are endogeneity (originating inside the system) and emergence, and both are important to understand the difference between risk 1.0 and 2.0.

Endogeneity

Risk 2.0, in contrast to 1.0, accepts that risk can arise from within the system, precisely because risk 2.0 assumes a system, and a system has feedback loops. These loops can have physical properties and obey physical laws, such as increasing greenhouse gas concentrations, which trap heat, which changes the risk of hurricane damage for real estate in Florida (and elsewhere). Or they can be more metaphysical, an idea best expressed by George Soros’ ‘reflexivity’. For example, if investors believe that markets are efficient, then that will change how they invest, which in turn will change the nature of the markets (but not necessarily make them more efficient). A reinforcing feedback loop, insufficiently constrained by a balancing loop, can quickly cause a system to exhibit extreme behaviour and trigger tipping points.

Emergence

The second concept, emergence, requires the abandonment of reductionist cause-and-effect thinking, and the embrace of holistic systems thinking where we can observe the effect but will never know the exact cause. Emergence is a characteristic of any complex system where there is a sufficient number of interacting entities. Classic examples are termite mounds and ant colonies.

We can use this idea to consider the global economy. There are billions of us interacting continually, so perhaps the global economy is an emergent phenomenon. We can observe that global economy consumes energy and produces and distributes goods. Is it controllable? Well, 196 countries signed up to the Paris Agreement (many put it into national law), produced commitments to reduce greenhouse gases (nationally determined contributions), and… At the time of writing, the annual production of greenhouse gases is still rising, despite the most powerful actors decreeing that they must fall (see [1] [2]). We know we need to transition away from fossil fuels, so we build renewable energy generation. But the transition doesn’t happen, because the emergent global economy will happily use all the energy it is offered (AI and crypto, anyone?). Perhaps the global economy is not controllable.

Therefore, the main difference between risk 1.0 and risk 2.0 is the underlying model of reality. Newtonian physics for 1.0, and complexity science for 2.0. We are in no doubt that risk 2.0 is conceptually superior, but we acknowledge that it is far, far less mathematically tractable and, for the foreseeable feature, harder to engage with. Building a new risk model, and a new risk management process will be very difficult. It will require us to think wider (to address endogeneity, among other things), and softer (to cope with emergence, among other things) and longer (see later in series).

Tim Hodgson is co-founder and head of research of the Thinking Ahead Institute at WTW, an innovation network of asset owners and asset managers committed to mobilising capital for a sustainable future.

[1] The majority of government targets and actions are insufficient, and in many cases highly or critically insufficient to achieve the goals of the Paris Agreement, see for example

[2] In addition, existing Nationally Determined Contributions fall far short of the amount of emission reduction required to achieve a WB2C outcome, see for example