RT Journal Article
SR Electronic
T1 Private Equity Program Breadth and Strategic Asset Allocation
JF The Journal of Private Equity
FD Institutional Investor Journals
SP 19
OP 26
DO 10.3905/jpe.2019.22.2.019
VO 22
IS 2
A1 Alexander Rudin
A1 Jason Mao
A1 Nan R. Zhang
A1 Anne-Marie Fink
YR 2019
UL https://pm-research.com/content/22/2/19.abstract
AB It is quite often the case that investors form views on private equity program return and cash flow profiles by analyzing broad-based swaths of the private equity industry, while side-stepping idiosyncratic risks associated with narrower, realistic baskets of private equity pools. This article remedies this by performing an empirical analysis of private equity historical performance while accounting for program diversification. Comparing a private equity program to peer group averages is somewhat unfair, as such methodology favors larger programs, arguably without merit. The authors explain a way to correct for this bias. Finally, the authors present a probabilistic strategic asset allocation framework for private equity programs that help make informed trade-offs between breadth, strategy mix, and associated costs.TOPICS: Private equity, statistical methods, performance measurement, portfolio construction