ASSET
ALLOCATION
WITH
PRIVATE
ASSETS
ASSET ALLOCATION CHOICES matter including for private Assets
CIOs have long known that asset allocation decisions drive 90% of investment outcomes.
This applies to private assets as well. As the share of private equity or private infrastructure increases in the portfolio, so does the importance of getting the weights and balance of private and public asset classes right.
Often the size of the private asset allocation is set in an ad hoc manner without taking correlations and risk into account, or using data that is mostly in adequate: smooth fund manager benchmarks or listed proxies.
PRIVATEMETRICS indices represent the asset class
privateMetrics market indices capture of the dynamics of the broad market and can be used as asset allocation or global strategy benchmarks. They include the private2000® and the infra300® indices.
privateMetrics also includes thematic indices that focus on specific segments of private markets such as sector and geographies but also business or customer model, and style factors like size or revenue growth. Such indices can be combined and used to create a new benchmark that is representative of an investors choice of strategy or exposure to private markets.
Using the privateMetrics market and thematic indices or custom benchmarks, it is possible to measure build complete asset allocation exercises using various optimisation methods. Thanks to their monthly frequency, ten-to-twenty-year track record, consistent construction methodology and mark-to-market quality, privateMetrics indices provide a genuine like-for-like comparison with public asset classes.
Using market indices or a customised benchmark, investors in private assets can derive optimal allocations to private markets that reflect their risk or return objectives.
BUILD AN ASSET ALLOCATION IN Three SIMPLE STEPS USING PRIVATEMETRICS
Select the relevant asset class benchmark
Given your strategy to invest in the private equities or private infrastructure markets or both, select the privateMetrics index that represents this choice e.g. privateUSA for private equities in the U.S. or infraGreen for investing only in renewable energy.
Build your capital market assumptions
Find the optimal allocation to private asset classes
Integrate the privateMetrics data into your own portfolio optimisation or construction framework and obtain weights that meet you risk or return objectives your total portfolio strategic allocation. You can also use privateMetrics to extract cross-asset class risk factor exposures and build total risk allocation strategy.
Want to know more?
Contact a member of our team.privateMetrics® insights
the EDHEC Infrastructure & Private Assets Research Institute
