Risk Adjusted Returns: By Strategy and All Private Markets
July 17, 2019
July 17, 2019
Risk Adjusted Returns
With more PPMs, there is more choice in the private markets. This can help with portfolio construction and diversification. Diversification allows limited partners to better orient themselves around risk and return expectations for their portfolio.
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Please Note the Following
All private markets includes all private, commingled funds excluding fund-of-funds and secondary fund-of-funds.
Private equity is defined as any fund that offers equity capital to private companies. Private credit is any fund that offers debt capital to private companies. Real assets includes any PE fund that focuses primarily on providing debt capital directly to private companies. Real assets funds often use the company’s assets as collateral.
Infrastructure is an investment strategy that invests in physical systems involved in the distribution of people, goods and resources. Mezzanine includes any PE fund that primarily invests in the mezzanine debt of private companies. U.S. SMID is any buyout fund smaller than a certain fund size, dependent on vintage year, that is primarily investing in the United States. U.S. Mega/Large is any buyout fund larger than a certain fund size, vintage year dependent, that is primarily investing in the United States.
ROW Equity includes all buyout, growth and venture capital-focused funds, with a geographic focus outside of North America and Western Europe. U.S. & EU VC/Growth is any PE fund that focuses on providing growth capital through an equity investment with a geographic focus in the United States and European Union. Distressed Debt includes any PE fund that primarily invests in the debt of distressed companies. EU Buyout is any buyout fund primarily investing in the European Union. Real Estate (Non-Core) is any closed-end fund that primarily invests in non-core real estate, excluding separate accounts and joint ventures. Natural Resources are an investment strategy that invests in companies involved in the extraction, refinement, or distribution of natural resources.
Desmoothing is a mathematical process to remove serial autocorrelation in the return stream of assets that experience infrequent appraisal pricing. For example, private equity. Desmoothed returns may more accurately capital volatility than reported returns. The formula used for desmoothing is rD(t) = (r(t) – r(t-1) * p) / (1-p).
rD(t) = the desmoothed return for period t
r(t) = the return for period t
p = the autocorrelation