Chapter 4. Private equity in diversified investment portfolios
Chapter Outline
4.1. Returns, risk, and correlations70
4.2. The stale price problem73
4.3. Managing dynamic risk77
4.4. Why do allocations to private equity vary so much?79
4.5. Summary and conclusions82
Appendix 4.1 Measuring market risk in private equity83
In constructing their investment portfolios, many investors follow a two-step approach. In a first step, portfolio managers determine the share of capital they want to allocate to broadly defined asset classes, such as public equity in mature markets and emerging markets, fixed income, real estate, hedge funds, and private equity. Once the overall asset mix is determined, in a second step investors need to decide how much capital ...
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