Portfolio Construction and Market Insights with Daniel Kelly of Viola Private Wealth

June 9, 2025

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Daniel Kelly, Chief Investment Officer at Viola Private Wealth, shares insights on current market dynamics, portfolio construction, and the evolving role of alternative investments. Here are the key points from the discussion:

Market Outlook and Economic Indicators

US Economy: Despite narratives of declining US exceptionalism, recent market rallies (e.g., S&P 500’s 10% single-day surge) suggest resilience. Key indicators like job market health and inflation remain stable, though data is lagging.
Forward-Looking Metrics: Forward P/E ratios are more useful than trailing P/E, as equities price in future earnings. Sentiment data is less reliable due to inherent human negativity bias.
Policy Uncertainty: Markets remain highly sensitive to geopolitical developments, particularly US-China trade tensions. The 90-day tariff pause in April 2024 triggered a sharp rally, underscoring the impact of policy shifts.

Portfolio Construction Principles

Beyond 60/40: Traditional 60% equities/40% bonds portfolios are evolving. KKR research suggests a 40/30/30 split (equities/bonds/alternatives) for better risk-adjusted returns.
Alternatives Allocation: Private credit, private equity, infrastructure, and venture capital now play a critical role. These assets provide diversification, inflation hedging, and emotional stability due to lower mark-to-market volatility.
Liquidity Considerations: Semi-liquid alternative vehicles (e.g., interval funds) offer accessibility but require caution—redemption gates can limit liquidity during stress.

Actionable Insights

Cash Management: “Cash is king” is a misnomer; excessive cash holdings erode purchasing power. Viola recommends ~5% cash allocations, adjusted for near-term liabilities.
Infrastructure as the New Private Credit: Contractual cash flows linked to inflation make infrastructure a compelling hedge, with equity-like returns and ~6% yield.
AI’s Broad Impact: AI adoption is not limited to tech firms—it enhances margins across sectors, potentially justifying higher market valuations.

For deeper analysis, Daniel’s paper on alternatives in portfolio construction is available here (link to be included).

Note: Viola Private Wealth specialises in high-net-worth clients, but these principles apply broadly. Always tailor strategies to individual risk tolerance and goals.

“We’d like to believe that our current stars are better than the guys we once watched. Why? Because the single best thing about sports is the unknown. It’s more fun to think about what could happen than what already happened.” – Bill Simmons

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