Asset Allocation with Private Equity
95 Pages Posted: 30 Jan 2022 Last revised: 19 Aug 2022
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Asset Allocation with Private Equity
Asset Allocation with Private Equity
Date Written: August 1, 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 and theoretical work 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: Suggested Citation