Appropriateness and feasibility of targeted diversification in a private equity portfolio
Name
85774687-MIT.pdf
Description
Full printable version
Size
3.22 MB
Format
Adobe PDF
Checksum (MD5)
6b42945c1b493e02f52af45f08e8ba03
Author(s)
Browne, Kathleen R. (Kathleen Rose)
Advisor(s)
Antoinette Schoar.
Date Issued
2006
Publisher
Massachusetts Institute of Technology
Abstract
Diversification tools such as modem portfolio theory are used by institutional investors when making asset allocation decisions, which often result in an allocation to the private equity asset class. While some level of diversification within a private equity portfolio, in theory, should produce higher risk-adjusted returns, in practice it is problematic. Through a combination of quantitative analysis of historical private equity returns and qualitative analysis of the investment programs of several large institutional investors with long histories in private equity, the appropriateness and feasibility of targeted diversification is evaluated. The research indicates that the success of private equity investment programs is influenced more by the quality of the managers in the portfolio than by strategic design. Therefore, the ability of investors to access strong performing managers, and to choose not to invest when such access is not possible, is paramount. That said, institutions generally maintain some level of diversification in their portfolios. However, they often do so on an opportunistic basis or within a policy that affords them sufficient flexibility to overweight an area that offers the best expected returns.
Description
Thesis (M.B.A.)--Massachusetts Institute of Technology, Sloan School of Management, 2006.
Includes bibliographical references (leaf 52).
Subjects
Sloan School of Management.
MIT Department
Sloan School of Management
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