State Street Expertise

Building a Better Risk Framework for Fitting Private Equity into Investment Portfolios


January 2020

Private equity has been one of the fastest-growing asset classes over the last decade.

For institutional investors with long time horizons, harvesting the illiquidity premium is an attractive opportunity in a world of stretched public equity valuations and negative interest rates. But understanding how to size the allocation and resolve the different valuation, volatility and liquidity characteristics of private versus public equity has been a challenge for strategic asset allocation. Until now.

A group of State Street researchers recently launched a ground-breaking framework for estimating both the systematic and idiosyncratic risk of private equity programs.