Why structure, not markets, may be the biggest risk in portfolios today

Investors have spent years trying to navigate inflation, rates and geopolitics, but Rebecca Jacques’ argument is that many may be looking in the wrong place.

While scenario analysis continues to focus on economic shocks and market drawdowns, she believes the more significant risk is structural. As portfolios move further into private markets and more complex vehicles, the question is no longer just how assets perform, but how they are built, governed and exited.

That shift is subtle, but important. Traditional portfolio construction assumed a relatively uniform market structure, where assets were liquid, pricing was transparent and investor rights were broadly consistent. That world is changing. Jacques’ concern is that investor behaviour has not fully caught up.

Scenario analysis has limits

Jacques’ first point is that scenario analysis, while useful, is inherently incomplete. By design, it focuses on downside outcomes, modelling recessions, inflation shocks or market sell-offs. It does not capture upside surprises, and more importantly, it does not deal well with structural differences between investments.

This creates a risk for advisers relying too heavily on these frameworks. Portfolios can be built to withstand a wide range of economic scenarios but still be exposed to risks that are not captured in those models. In Jacques’ words, if investors try to hedge every downside, they end up carrying too much “insurance” that may never pay off.

More critically, scenario analysis assumes a level of consistency across assets that is becoming less realistic. In public markets, that assumption largely held. Today, as portfolios expand into private assets and more bespoke structures, the variability between investments is far greater.

The shift to private markets changes everything

Jacques’ second argument is that the move from public to private markets is not just about access to new opportunities. It fundamentally changes how investments behave. In public markets, investors were largely treated the same. In private markets, structure determines outcomes.

That means factors such as liquidity terms, investor rights and exit mechanisms become central to the investment decision. Yet Jacques suggests many investors have not paid enough attention to these details. In some cases, they are discovering how structures work only when they begin to unwind.

Her observation on recent headlines is telling. What some investors perceive as stress events are often simply the natural functioning of private-market structures. Funds gating redemptions or winding-down are not necessarily failing, they are operating as designed. The issue is that many investors did not fully understand those mechanics at the outset.

“It’s not just an investment argument, it’s a much more nuanced argument of what am I actually going into.”

For advisers, this reinforces a basic but increasingly important principle. Labels are not enough. Two investments described in similar terms can have very different structures, rights and outcomes.

Structural shifts are reshaping portfolios

Jacques also points to a broader set of structural changes shaping portfolios. Mercer’s thematic work has focused on long-term trends such as the energy transition, shifting geopolitics and the reconfiguration of global supply chains. These forces are driving renewed interest in areas such as commodities, rare earths and real assets.

Her view is that these are not short-term trades. The global environment is becoming more fragmented, with higher geopolitical tension and more persistent inflationary pressure. That combination supports assets that had previously struggled in a low-inflation, globalised world.

However, accessing these themes is not straightforward. Even instruments that appear simple, such as ETFs, can carry hidden complexities. Liquidity may depend on underlying market-makers, and cost structures may be higher than investors expect. Again, the lesson is that structure matters as much as exposure.

Jacques also pushes back on the idea that portfolios should always maintain daily liquidity. Many of the opportunities emerging today, particularly in private markets and real assets, do not fit neatly into that framework. Advisers need to balance the desire for flexibility with the realities of the underlying investments.

For advisers, Jacques’ broader message is both practical and philosophical. The investment world is becoming more complex, not just in terms of macro drivers, but in how assets are constructed and delivered. The shift to private markets offers genuine benefits, including flexibility and differentiated return streams. But it also removes the uniformity that investors once relied on.

In that environment, due diligence has to go deeper. Understanding structure, terms and exit pathways is no longer optional. It is central to risk management. Markets will always move, and scenario analysis will always have a role. But as Jacques makes clear, the next generation of portfolio risk may be less about what happens to markets, and more about what sits underneath the investments themselves.