Indrani De, CFA, PRM
Head of Global Investment Research
Mark Barnes, PhD
Head of Global Investment Research, Americas
Key takeaways:
- Private equity investments are attractive for investors due to their expected pattern of having relatively high returns, low volatility, and low correlation to public equities.
- This pattern is at least partially driven by private equity being illiquid and not being marked to market at a regular frequency.
- While private equity assets are generally difficult for retail investors to access, investment vehicles are emerging that are relatively more liquid and marked to market, but this change and other choices in index construction methodology can alter the expected performance pattern of the index.
Points of differentiation:
- This research explains how private equity performance patterns can be tied back to two fundamental characteristics of the asset class: illiquidity and not being regularly marked to market.
- We differentiate between an index that is an aggregation of private equity data and one that uses public market proxies to gain access to private market characteristic. The former provides a good description of private equity return patterns and the latter illustrates how using public equities results in deviation from these patterns.
What does our research mean for investors?
This paper helps investors understand expectations of private equity performance patterns, and how those expectations change when using public market proxies to access private markets.
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