Asset Allocation with Private Equity

95 Pages Posted: 30 Jan 2022

See all articles by Arthur G. Korteweg

Arthur G. Korteweg

University of Southern California - Marshall School of Business

Mark M. Westerfield

University of Washington

Date Written: January 2022

Abstract

We survey the literature on the private equity partnership arrangement from the perspective of an outside investor (limited partner). We examine how the partnership arrangement fits into a broader portfolio of investments, and we consider the methods and difficulties in performance measurement, both at the fund level and at the asset class level. We follow with a discussion of performance persistence and the skill and pricing power of both general and limited partners. We continue by examining the limited partner's problem of managing commitments and investments over time while diversifying across funds in light of both idiosyncratic and systematic shocks. We close with a summary of recent work on optimal portfolio allocation to private equity. Throughout, we consider how empirical work and theory match the particular institutional details of private equity, and we identify 27 open questions to help guide private equity research forward.

Keywords: Asset Allocation, Private Equity, Buyout, Venture Capital, Review Article

JEL Classification: G23, G24, G11

Suggested Citation

Korteweg, Arthur G. and Westerfield, Mark M., Asset Allocation with Private Equity (January 2022). Available at SSRN: https://ssrn.com/abstract=4017858 or http://dx.doi.org/10.2139/ssrn.4017858

Arthur G. Korteweg

University of Southern California - Marshall School of Business ( email )

3670 Trousdale Parkway
Los Angeles, CA 90089
United States

HOME PAGE: http://www.marshall.usc.edu/personnel/arthur-korteweg

Mark M. Westerfield (Contact Author)

University of Washington ( email )

Box 353200
Seattle, WA 98195
United States

HOME PAGE: http://www.markwesterfield.com

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