Institutional investors have increased their allocation to private assets to capture a potential return premium over public assets and diversification benefits. However, an allocation to private assets, which typically are less liquid than public assets, raises questions: “How does an allocation to private assets affect my portfolio’s ability to satisfy my cash liabilities?”; “What is the marginal cost, in terms of portfolio returns, to increase my confidence of always having enough liquidity to satisfy these liabilities?”; and “What is my optimal allocation to private assets and the composition of the private and public portfolios?”. “Liquidity” for investors is their degree of confidence that their portfolios will satisfy cash flow obligations. Investors who believe their portfolios are liquid are highly confident that they can meet all cash flow obligations across different economic scenarios – even if the portfolio may contain some less-liquid private assets. In contrast, investors who state that their portfolios are not very liquid have less confidence they will always be able to meet all their obligations. We propose a public-private asset allocation framework that incorporates the characteristics of common illiquid private assets (limited partnerships, or LPs). We assume the investor tries to maximize expected horizon portfolio value provided that the investor’s future cash obligations are all met with a pre-specified minimum degree of confidence. Risk to the investor is not short-term volatility but failing to meet cash obligations. The framework highlights that the optimal public-private asset allocation, and the optimal asset allocation within both the public and private portfolios, are interrelated. In addition, the model shows that increasing a portfolio’s liquidity – i.e., increasing the confidence of meeting all cash obligations – implies a less risky portfolio, with a lower allocation to less liquid, private assets. However, this may be expensive in terms of the expected future horizon value of the portfolio. The investor faces a fundamental tradeoff: liquidity vs. performance. If an investor chooses to be more confident of meeting all future cash obligations, how much will this additional liquidity cost in terms of expected future portfolio value? Some investors may conclude that their portfolios may be too liquid.