Private Equity Characteristics and Implications for Liquid Portfolios

This report examines the return, volatility, and correlation characteristics of private equity versus public markets, highlighting how illiquidity and valuation methods drive its performance profile.

Key Takeaways

• 1.Private equity offers a profile of higher returns, lower volatility, and low correlation compared to public equities, largely due to illiquidity and a lack of frequent mark-to-market valuations.
• 2.The 'smoothing' of private equity valuations results in positive autocorrelation in the first three quarters, reflecting low quarter-by-quarter volatility followed by long-term mean reversion.
• 3.Liquid investment vehicles that track private equity using publicly traded securities often show significantly higher volatility and higher correlation with large-cap public indices like the Russell 1000.

Table of Contents

• Introduction
• Relationship of private equity to public equity
• Private equity return characteristics
• Portfolio considerations
• Implementation
• Summary
• Data note

Document Preview

Page 1 of 1

Subscribe for full accessStart Free Trial