Customization and private markets reshape high-net-worth portfolio strategy.
Periods of market turbulence are often framed as threats to portfolio stability, but new research suggests they are also accelerating structural change in US wealth management.
The study, conducted jointly by PGIM and SHOOK Research, surveyed more than 200 SHOOK-ranked financial advisors and found that heightened volatility, tax sensitivity, and demand for customization are driving rapid adoption of direct indexing and alternative investments in high-net-worth portfolios. What were once specialized offerings are increasingly becoming core allocation tools.
The research was conducted during a stretch of elevated market instability following renewed trade-policy uncertainty and inflation concerns. During the first eight months of 2025, the CBOE Volatility Index averaged well above its prior two-year range. Rather than pulling back from risk markets, survey participants reported leaning more heavily on strategies designed to manage volatility while improving after-tax outcomes.
The report reveals that 86% of respondents said direct indexing is an important strategy in high-net-worth portfolio construction, rising from the previous year. The appeal remains grounded in tax efficiency — maintaining index-like exposure while harvesting losses at the individual security level — but motivations are broadening beyond taxes alone.
The report notes that loss-harvesting potential in US equity markets has been running more than double long-term averages, with large and fast-moving sectors offering particularly high opportunity.
While improving after-tax returns remains the leading reason for implementing direct indexing, diversification and portfolio customization have grown sharply in importance compared with earlier survey results.
The typical client base continues to be very-high-net-worth households with $5 million to $30 million in investable assets, though adoption among ultra-high-net-worth investors is now nearly universal. Provider selection is driven primarily by tax-loss capture capability and after-tax performance, followed by customization features and cost efficiency.
Alternative investments
The study also highlights accelerating adoption of alternative investments with private equity, private credit, and private real estate dominating allocations, while infrastructure strategies are emerging as a priority for increased exposure over the next year. Most high-net-worth portfolios now allocate roughly 6% to 20% to alternatives, reflecting a broad consensus range rather than experimental positioning.
Survey participants cited managing risk exposure, hedging volatility, and downside protection as the primary reasons for incorporating alternatives. Income generation and inflation hedging also rose in importance compared with the prior year’s findings, reflecting persistent rate and price uncertainty.
Private credit stands out as a focal point of growing interest. The report notes that floating-rate private lending structures have delivered historically strong risk-adjusted returns, offering equity-like performance with lower volatility than traditional stock-bond portfolios. This has positioned private credit as a complement to conventional allocation frameworks rather than a niche strategy.
Both direct indexing and alternatives remain most prevalent among households above $5 million in investable assets. Nearly all very-high-net-worth and ultra-high-net-worth client segments in the survey maintain exposure to alternatives.
However, the report points to product innovation and lower minimums as forces likely to broaden access over time. Manager selection continues to emphasize performance track record, experience through market cycles, and firm reputation, underscoring the importance of operational credibility in complex strategies.
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