The new approach to asset allocation treats private markets as an alternative to public stocks and bonds, not just a small add-on. This means integrating them directly into the core equity and debt portions of a portfolio to enhance returns and diversification.

The secondary market is no longer just a "knee-jerk reaction" for LPs to rebalance portfolios during downturns. Sophisticated LPs now use it programmatically as an active management tool to gain liquidity from older vintages, prune non-core manager relationships, and adjust sector exposures, offering flexibility beyond the traditional 10-year fund life.

Due to massive fund growth, PE firms are shifting focus. They allocate resources to winning portfolio companies and use liability management to extend runway for underperformers, rather than committing fully to every investment. This portfolio-centric approach differs from the traditional model of being deeply married to each deal.

When diversifying, PE firms should ignore strategies that won't become multi-billion dollar platforms. A small mid-market fund is a distraction. Instead, focus on large, synergistic asset classes like credit or real estate, as they can scale quickly and significantly move the needle on total AUM, justifying the complexity.

A pure TPA system can alienate specialists hired for specific asset classes. A hybrid model, where a portion of capital is allocated to traditional buckets, allows organizations to retain deep expertise in areas like private equity while still gaining the benefits of a holistic TPA overlay on the rest.

Institutional allocators are currently over-allocated to illiquid private assets due to the denominator effect. When distributions from these funds finally resume, the initial wave of capital will be used to rebalance portfolios back toward public markets, not immediately recycled into new private equity commitments, a trend private GPs may not see coming.

To ensure winning investments materially impact the endowment, Baylor reverses the typical allocation logic. It decides on a target dollar amount per underlying company (e.g., $3 million) and sizes its fund commitment accordingly, based on the fund's expected number of investments.

Traditionally for wealthy individuals, evergreen (open-ended) funds are now being adopted by institutional investors. They offer a key advantage over traditional drawdown funds: the ability to 'dial up or down' exposure immediately, fully investing capital on day one instead of waiting years for capital calls.

The private equity industry has entered its third phase: consolidation. In this era, scale is the primary determinant of survival. Firms with under $100 billion in assets under management are now considered 'subcritical' and will either be acquired by mega-funds or slowly enter a runoff phase and disappear over time.