Private Assets and Something About Ostriches

Any investment decision, and any decision made within an enterprise, must account for risk. Discounted cash flow valuations are completely invalid, have no significance whatsoever, and are useless for decision-making if they don’t properly account for risk. Market values derive from an estimation of risk.


NO MATTER WHICH OPTIMIZATION METHODOLOGY WE use—multiperiod, full scale, mean variance, tail-risk-aware versions of mean variance, risk parity, and/or judgment and experience—a perennial challenge in portfolio construction has been to determine the optimal allocation to alternative asset classes. Institutional investors such as public pensions and endowments have grappled with this question ...

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