Liquidity budgets set the ceiling, and manager selection determines how much of it to use
RIAs size a private equity allocation by working backward from the capital each client household can commit for ten years or longer without disrupting spending, taxes, or planned liquidity events. Within that ceiling, the final figure reflects the quality of the firm's access to managers and the confidence its selection process can support.
Most discussions of private equity strategies for RIAs begin with the return case. The sizing decision deserves equal attention, because it converts a view on the asset class into a commitment clients cannot easily reverse. The framework below treats liquidity as the binding constraint and manager selection as the variable that determines how much of the available room to use.
How much do RIAs allocate to private equity today?
In September 2025, Cerulli Associates estimated that $1.9 trillion in U.S. advisory-channel assets is invested in less-than-fully-liquid private market strategies, a figure it projects will reach $3.7 trillion by 2029. As a share of portfolios, this level remains modest. Cerulli's 2024 data, cited in KKR's 2025 RIA Private Markets Survey, placed the average allocation to alternatives in advisory client portfolios at 2.3%. At the same time, nearly half of the more than 100 RIAs KKR surveyed allocated 10% or more of assets under management to private markets. KKR notes that its sample focused on firms already active in the asset class.
Endowments sit well above both figures. The 2025 NACUBO-Commonfund Study of Endowments, covering 657 institutions for the fiscal year ended June 30, 2025, reported dollar-weighted allocations of 16.8% to private equity and 12.2% to venture capital. Those allocations are based on a perpetual horizon and a spending rule, with NACUBO reporting an average effective rate of 4.9% in fiscal 2025. BIP Capital's analysis of why the traditional 60/40 portfolio no longer reflects the investable universe explains the structural reasons for that gap. For sizing purposes, the relevant point is narrower: a client household faces discrete liquidity events, estate timelines, and tax obligations that an endowment does not, so institutional allocations are a reference point rather than a target.
How do liquidity needs set the ceiling on a private equity allocation?
The liquidity budget is the portion of a household's assets that can be committed for the full life of the investment under a stress scenario, rather than under a base case. A useful stress case combines a public equity drawdown, a pause in private equity distributions, and an unplanned cash need, because those conditions tend to occur together. Inputs include projected spending over five to seven years, known events such as tax payments, business transitions, and planned gifts, concentrated positions, and unfunded commitments already outstanding. The liquidity budget is, in effect, the household-level counterpart to the Total Portfolio Approach that CalPERS adopted in November 2025, which weights each holding by its contribution to the whole portfolio's risk and liquidity budget rather than by a fixed asset-class target.
The stress case should also rely on unsmoothed risk estimates rather than reported marks. Appraisal-based private equity marks carry forward prior valuations, which suppress measured volatility; a 2024 study reported by Morningstar found that removing that smoothing roughly doubled the measured volatility of buyout funds and increased early-stage venture volatility from 29% to 87%. BIP Capital's analysis of volatility laundering and the efficient frontier explains why a sizing model fed reported marks will understate how much a private equity sleeve can lose in the scenario that matters most.
Recent distribution data shows why the stress case matters. Bain & Company's Global Private Equity Report 2025 reported that buyout distributions as a percentage of NAV fell from an average of 29% from 2014 to 2017 to 11%. PitchBook data, as described by analyst Nicolas Moura in Financier Worldwide in 2026, placed distributions at roughly 17% of NAV in 2025, against a ten-year average of 26%. Distribution yields vary by provider, universe, and denominator, with some measured against NAV and others against AUM, so they are comparable only within a single source. StepStone Group has also noted that lower distribution yields reflect NAV growth more than a collapse in absolute distributions. In either case, a sizing model based on the prior decade's cash-return pace understates how long capital remains committed.
Allocation drift compounds the problem. In a hypothetical portfolio of 60% public equity, 25% fixed income, and 15% private equity, a 30% decline in public equity, with flat bonds and a 10% markdown in private equity, lifts the private equity weight to roughly 16.8% without any new commitment. Because appraisal-based marks lag public prices, part of that drift reverses as private equity valuations catch up, and the reported weight overstates the sleeve's economic value during the drawdown. The policy consequence is the same in either case: an investment policy statement without a tolerance band for illiquid assets puts the firm outside its own policy when rebalancing is least feasible.
Semi-liquid structures alter the liquidity budget without removing it. Most non-traded BDCs and many evergreen funds limit repurchases to roughly 5% of NAV per quarter. According to Fitch Ratings data reported by CoinDesk in July 2026, redemption requests exceeded that cap at 10 of the 16 non-traded BDCs Fitch tracks in the second quarter of 2026, with average requests of 10.3% of shares. These vehicles hold private credit, but repurchase mechanics are similar across evergreen structures. The caps worked as designed. For portfolio liquidity management, repurchase capacity should be kept outside the stress-case budget, because it is least available when the most investors want it.
How much should manager selection change the size of a private equity allocation?
J.P. Morgan Asset Management's Guide to Alternatives, in its third-quarter 2026 edition, shows greater dispersion between upper- and lower-quartile managers in private equity and venture capital than in public equities or bonds, as measured by ten-year IRRs. That dispersion cuts both ways, since a poorly selected manager costs more in private equity than in public markets. Verdad Capital's analysis, "The Dispersion Delusion," adds a caution, finding that private equity dispersion resembles that of public portfolios with comparable size and leverage, suggesting that part of the spread reflects factor exposure rather than skill.
Persistence research narrows the question. Harris, Jenkinson, Kaplan, and Stucke, in a study published in the Journal of Corporate Finance in August 2023 using Burgiss cash-flow data, found little or no persistence among post-2000 buyout funds when measured using information available at fundraising, and any modest persistence they did find was concentrated among weaker performers. Venture capital performance remained persistent across funds raised by the same general partner. For buyouts, a prior quartile ranking is more useful for avoiding managers than for choosing them. For venture capital, prior results carry more information, but access to persistent managers is usually capacity-constrained.
The sizing implications are direct. A firm whose private market access consists mainly of large, broadly diversified funds is buying exposure near the asset-class median, and its allocation should be based on the illiquidity premium net of fees rather than on manager skill. A firm with a documented diligence process and access to managers in segments with wider dispersion can justify using more of the liquidity budget, provided it accepts the higher cost of a selection error.
What is a practical sequence for sizing a private equity allocation?
An investment committee can apply these inputs household by household. Liquidity sets the ceiling before any discussion of expected returns, and selection capability then determines how much of that ceiling to use.
The resulting allocation will be lower than peer benchmarks for some households and higher for others. A single model percentage applied across a client base is simpler to administer but harder to defend. Commitment pacing, vehicle choice, and fiduciary documentation are covered in the companion article How RIAs Build and Document a Private Equity Allocation.
About BIP Capital
BIP Capital is an Atlanta-based investment adviser registered with the SEC that focuses exclusively on private markets, providing private equity and private credit investment products, intelligence, and practice infrastructure to advisory firms. BIP Ventures is the name under which BIP Capital conducts its venture capital and growth equity business. LAGO Asset Management, LLC is a separate SEC-registered investment adviser that manages the private credit strategy available through the BIP Capital platform. BIP Capital and certain of its principals hold minority equity interests in LAGO, and BIP Capital serves as LAGO's fund administrator and receives compensation for those services, which creates a conflict of interest.
Important information
This material is intended solely for the use of the individual or entity to whom it is addressed and may not be redistributed. This material is provided for educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security, nor is it investment, legal, or tax advice. Private market investments involve a high degree of risk, including illiquidity and the possible loss of the entire amount invested. Past performance is not indicative of future results. Third-party data are believed to be reliable but have not been independently verified. Any example presented is hypothetical and for illustrative purposes only. LAGO Asset Management serves as manager and originator; BIP Capital serves as platform and distributor. Please refer to the applicable Form 10 and Private Placement Memorandum for complete information.