RT Journal Article
SR Electronic
T1 The New Diversification: <em>Open Your Eyes to Alternatives</em>
JF The Journal of Private Equity
FD Institutional Investor Journals
SP 72
OP 81
DO 10.3905/jpe.2016.20.1.072
VO 20
IS 1
A1 Christopher Geczy
YR 2016
UL https://pm-research.com/content/20/1/72.abstract
AB During the 2008 financial crisis, many portfolios considered widely diversified failed to fulfill their expected function of protecting against large drawdowns. Historically, correlations among various types of stocks and bonds have usually increased during financial shocks, but the diversification shortcomings of standard portfolio allocations still surprised investors. Six years later, managers have a more sophisticated understanding of portfolio drawdown risk and how to mitigate it through diversification. In this article, the author advocates a focus on the risk exposures within a portfolio and inclusion of risk diversifiers—often sourced through so-called alternatives—to design portfolios more resistant to volatility spikes and major shocks.TOPICS: Private equity, portfolio construction, financial crises and financial market history, risk management