Strategic asset allocation for institutional portfolios with private equityManuel Wedra
, 2017, diplomsko delo
Opis: It is possible to participate in the PE industry in different ways. Direct investment, co-investments, alongside specialized investors, indirect investments through limited partnership, and indirect investments through fund of funds.
Big institutional investors usually make direct investments. For this approach to PE it is required to invest in a fund management team, which has an intensive relationship and due diligence skills to select the appropriate PE investments. For medium or small size investors, who do not have such high amount to invest, direct investment might not be achievable and it is recommended to invest in funds. Investing in PE funds also gives a higher level of diversification, and is managed by a specialized fund management team.
From a PE backed company perspective, fund managers do not only provide capital, but also offer management support, take an active role, where they contribute their skills, network, and experience.
Besides the opportunity to get exposure to unlisted PE funds with Limited Partnership, it is also possible to invest in exchange-traded PE companies or LPE. These PE investments are done either directly, indirectly or through the capital of their customers. Investments are conducted in the same way as Limited Partnerships, through various investment horizons (venture, buyout and growth) and financing styles (equity, mezzanine and debt). These exchange-traded PE companies offer the investor an immediate, liquid exposure to the PE investment class.
The problem with investing in unlisted PE funds is the minimum required capital to participate in the PE investment class, which is usually too high for smaller or individual investors. It is also difficult to determine the price, which is determined on a illiquid and not transparent secondary market. While the LPE is traded on an organized exchange market, that is liquid, has transparent market prices available and the possibility to get access to the investment class even for smaller institutional or individual investors with a minimum initial investment volume. Another advantage is the capability to rebalance their PE allocation in a flexible way. From analytic perspective it is also much easier to compare LPE to other public traded asset classes using common standard analysing tools.
In the analysis with the efficient frontier the portfolios with the additional asset class PE has a clear improvement of the risk, and return characteristics. Over the standard deviation range from 3.28% to 11.90%, the average improvement in return in the optimization framework is 0.48%.
For big institutional, smaller or even individual investors, the LPE gives a liquid, transparent and immediate exposure to PE.
In the environment of low interest rate, the PE mode is working well. If these kind conditions will continue in 2017, the asset class will continue to contribute a high absolute return and portfolio diversification.
Ključne besede: Private Equity, diversification, institutional and individual investors, strategic asset allocation.
Objavljeno: 26.05.2017; Ogledov: 650; Prenosov: 55
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