More Money Moving from Wall Street to Real Assets
When and Why the Movement Began
Until recently, many investors have allocated their portfolios primarily between stocks for growth and bonds for stability. Over the past couple of decades, however, more capital appears to be moving away from Wall Street’s traditional paper assets and into real-world assets like real estate, private credit, infrastructure, and private equity.
Institutional investors led this shift in the mid-2000s, but the 2008 financial crisis seemed to accelerate what had started as a gradual shift. As stocks took a beating and the economy slowed, investors started rethinking their portfolios. Then, with interest rates dropping to near zero, bonds became less attractive, pushing capital toward alternative investments that offered potentially higher returns and stability.
By the early 2010s, pensions, endowments, and high-net-worth investors had already begun meaningfully increasing their exposure to real assets. More recently, rising inflation, changing interest rates, and market volatility have continued to drive institutional interest, contributing to both higher valuations and greater stability in the alternative asset space. See growth chart below.
A series of major events—2008, 2020, and today—have reshaped investment strategies, turning private market assets from a niche play into a core part of institutional and high-net-worth portfolios.
Key Turning Points: 2008, 2020, and Today
2008: The Global Financial Crisis Forces a Rethink
The 2008 market collapse revealed some of the vulnerabilities in the traditional stock-and-bond portfolio, particularly in extreme downturns. Stocks fell nearly 57% (while housing declined around 30% on average), bond yields dropped to near zero, and pension funds faced challenges meeting their 7–8% return targets. In response, the Federal Reserve cut interest rates to near zero, further reducing the appeal of bonds for institutional investors.
As a result, large investors began increasing their allocations to real world assets—real estate, infrastructure, and private equity—to improve yield and stability. In 2001, pensions held just 9% in alternative investments. By 2009, that number had doubled, reaching 30–34% by 2022. Major institutions like CalPERS in California and Canada’s CPP have publicly emphasized private equity, infrastructure, and real estate as core components of their strategies. As a percentage of global assets, alternative investments grew from about 2% in 2001 to 8% by 2020. As of 2023, Yale’s endowment had over 70% of its portfolio allocated to alternatives, including real estate, venture capital, and private equity—up from just 15% in the early 1990s. Institutions tend not to chase trends— they focus on building allocation frameworks designed to endure them.
2020: COVID-19 and the Inflation Problem
The pandemic was another shock that accelerated the movement into real assets. In early 2020, when the stock market crashed, investors quickly moved to cash. But once governments implemented large-scale stimulus programs, markets rebounded. The Federal Reserve’s printing of over $4 trillion into the economy in 2020 contributed to inflationary pressures that have remained a key factor in investment decisions.
By 2021-2022, inflation reached its highest levels in 40 years, making it more difficult for the traditional 60/40 stock-bond portfolio to deliver expected returns. As a result, many top money managers turned to assets that could better retain value in an inflationary environment and amid currency depreciation. See chart below comparing portfolio returns since 2007.
Over the past decade, a traditional 60/40 stock-bond portfolio has typically delivered a Sharpe ratio between 0.4 and 0.6. In contrast, portfolios with a heavier allocation to income-producing real assets—like real estate, lower-leveraged private equity, and secured lending—have the capability of reaching a Sharpe ratio of 1.0 or higher. In addition to stronger risk-adjusted returns, real assets tend to be less sensitive to monetary policy shifts, relying more on tangible utility and long-term cash flows than on market sentiment. Peter Lynch once said, “Know what you own, and know why you own it.” Tangible assets make that easier—they produce income, provide utility, and offer transparency into how value is created.
Evolving Inflation Dynamics and Investment Implications
From the early 1980s through 2022, we’ve lived in a world where interest rates were fundamentally heading lower (see chart below 1982-2022) and inflation stayed mostly quiet. That was a great environment for owning stocks and bonds. Today’s environment shares similarities with the 1950s through early 1980s (where interest rates were fundamentally not moving lower), when inflation was being driven by things like government spending, supply constraints, and global tensions—factors that weren’t easily managed with interest rate policy alone.
We may be entering a period of more persistent inflation, even as the Federal Reserve continues to raise interest rates and the Trump administration cuts costs. Several underlying trends—such as deglobalization, tight labor markets, and the reshoring of manufacturing—appear to be contributing to this structural inflation.
Today: The Trump Economy and the Case for Hard Assets
With Donald Trump back in the White House, investors are watching how economic policy will evolve. His last administration focused on tax cuts, deregulation, and domestic industry—all things that tend to favor hard assets over financial speculation. If history is any guide, his policies are likely to promote business investment, infrastructure and energy production, and small businesses, all of which could increase demand for real assets. As Jeremy Grantham once said, “The U.S. has more financial engineers than real ones.” In an economy shifting back toward production and infrastructure, real assets regain their relevance.
At the same time, the fiscal challenges are still there. The national debt has soared past $34 trillion (see below), and interest payments are taking up a growing portion of government spending. Even with pro-business policies, inflationary pressures and rising debt levels make traditional financial assets more subject to fiscal and monetary policy (the government’s decisions). Current trends suggest continued institutional interest (pension funds, endowments, sovereign wealth funds, and private equity firms) in hard assets, with steady capital inflows and competition among major buyers. This steady inflow of capital has led to rising valuations in these sectors. Institutional involvement has also reinforced the stability of real assets. Unlike retail investors who may enter and exit markets based on short-term sentiment, pensions and endowments take a long-term approach, often holding assets for decades. This patient capital helps smooth out price fluctuations and provides a layer of stability that isn’t always present in publicly traded markets. Unlike public stocks, where market efficiency limits opportunities for outsized returns, private markets may offer opportunities to uncover mispriced assets, navigate distressed situations, or improve operations—areas that some experienced investors aim to leverage. Real assets offer distinct tax advantages, including depreciation deductions, tax-deferred growth through 1031 exchanges, and favorable capital gains rates. For example, investors in commercial real estate can typically deduct a portion of the asset’s value each year through depreciation, directly reducing taxable income over the asset’s depreciation schedule. Additionally, real estate investors frequently utilize 1031 exchanges, allowing them to defer capital gains taxes by reinvesting proceeds into similar properties, thus preserving more capital for reinvestment. These tax structures can provide tangible financial benefits that enhance long-term returns compared to traditional stock and bond portfolios.
Unlike public markets where scale can dilute returns, private markets often reward size, specialization, and patience. Often, the advantage isn’t just about access—it’s about alignment: having the structure and time horizon to stay invested through times when others can’t. For many, the shift to real assets is about control, transparency, and owning something you can truly understand when the world gets noisy. “The best investment you can make is in something you understand.” – Warren Buffett
