The death of 60/40 was declared too soon. Every down quarter since 2022 produced another wave of eulogies for the classic portfolio. Bonds and equities moved together. Real yields spiked. The diversification was gone. And so began the rush toward alternatives — private credit, hedge funds, infrastructure — as replacements for the bond sleeve. The problem: most of what replaced fixed income carried its own set of risks that weren't visible in the prospectus. Illiquidity risk. Manager risk. Correlation that only shows up in a crisis. This week: what the honest reconstruction of a post-60/40 portfolio actually looks like — and where the traps are.
The Diagnosis
What broke in 2022 wasn't the 60/40 — it was the rate regime
The 60/40 portfolio was never supposed to be permanent. It was a product of a 40-year bond bull market where duration paid you to wait. When real rates went negative, the calculus changed. Bonds stopped providing yield, stopped providing diversification, and became a liability in an inflationary environment.
What failed in 2022 was not the logic of holding uncorrelated assets — it was the assumption that government bonds would always be the uncorrelated asset. That assumption deserved to fail. The response — wholesale abandonment of fixed income in favour of private markets — is an overreaction that will cost some portfolios dearly in the next liquidity event.
The Rebuild
Four replacements actually being used by allocators we respect
The most thoughtful rebuilds we've seen share a common thread: they replace the function of bonds — income, capital preservation, drawdown dampening — rather than bonds themselves.
Short-duration credit (1–3yr investment grade) in separately managed accounts. Genuinely market-neutral hedge fund strategies — not long-biased funds with a short book. Infrastructure with contractual inflation-linked cash flows. And yes, some private credit — but selected for genuine floating-rate income, not just yield illusion.
What we rarely see working: a direct swap of bond allocation into private equity. PE is an equity risk, not a fixed income replacement. Treating it as one is how family offices end up with 60% equity risk without knowing it. Read more →
The Trap
Denominator effect revisited: why private market overweights look fine until they don't
The denominator effect cut many allocators in 2022 — public equities fell, making private market allocations look overweight relative to target. Most rode it out. The lesson was supposed to be: model your liquidity needs over the full cycle, not just the benign years.
The lesson many took instead: private markets held up, so buy more. This is precisely the kind of survivorship reasoning that produces fragile portfolios. Private market valuations lagged — they didn't not fall. The markdown is still arriving in some 2021-vintage funds.
The allocators we find most credible are the ones building explicit liquidity waterfalls — knowing exactly which assets get sold first, second, and last in a stress scenario — before adding any new private exposure.
What We're Watching
The convergence of liquid and illiquid: interval funds, evergreen structures, and what they actually cost
Semi-liquid vehicles are proliferating. Interval funds, NAV-based evergreen credit funds, tender-offer structures — all promising the return of private markets with something approximating liquidity. The fee structures are often opaque. The liquidity gates are real. The correlation to public markets during stress has not yet been tested at scale.
None of this makes them bad. It makes them products that require more diligence than their marketing materials suggest. The question to ask is not whether they're liquid — they're not, not when it counts — but whether the return premium over public equivalents justifies the complexity, cost, and gate risk.
— Cecile
Editor, The Family Office Allocator