Private Equity - 20 Top White Papers from the last twelve months
Allocations to Private Markets have risen steadily over the last 20 years, partly as a result of lower prospective returns from tradtional asset classes. The papers below consider a variety of key issues, including asset allocation principles, portfolio construction, governance, and an examination of a variety of PE sub-sectors.
Cambridge Associates leads the way with their recent paper on co-investment, arguing that this segment of the market is so large that it should no longer be "passively overlooked" by allocators.
Cambridge Associates argues that private equity co-investment should not be "passively" overlooked. This market segment may be opaque, but deal flow is significant. The sheer size and diversity of this sub asset class suggest that investors should seriously consider the opportunities available.
Welington explores the outlook for the late-stage growth companies. There is a growing tendency for firms to stay private longer - and to be more mature when they come to market. Could this present an opportunity for lower-risk gains?
Private Assets: The Tradeoff Between Liquidity and Performance (PGIM Institutional Advisory & Solutions, 2019)
Are investors sacrificing too much portfolio performance in the name of liquidity? Investors may wish to increase allocation to private assets with their potentially greater returns and diversification benefits, but worry that these assets are too illiquid to generate sufficient cash when needed. How can investors measure the tradeoff between liquidity and performance to determine their optimal mix of private and public assets?
For compliance reasons, this paper is only accessible in the EMEA region
China is planning to introduce a Nasdaq-type market for tech/research companies, seeking to broaden their access to private capital. Franklin Templeton examines what this will mean for investors. The goal is to help emerging companies become industry leaders, but identifying the winning companies will present a challenge.
This paper from S&P Dow Jones Indices explains the characteristics and make up of the S&P Listed Private Equity Index.
How accurate are the NAVs calculated by private equity managers? Are they reasonable predictors of future discounted cash flows? This academic paper processes the data for almost 400 VC funds and 200 buyout funds over the last 20 years. Interestingly, the results reveal significant differences in accuracy between buyout funds and VC funds.
Private versus Public Markets
How should asset allocators determine the appropriate mix of public and private equity in a multi-asset portfolio? This short post from SSGA provides some tips and suggests some further reading.
In this 49 page paper, Sviatoslav Rosov discusses the evolution of listed markets and examines the trend towards private capital formation and the increasing role of private equity and private debt. The paper finishes with policy recommendations.
The Private Equity Marketplace - Annual Reports
This comprehensive 82-page paper from Bain & Company examines the state and outlook of the global private equity industry. It review what happened in 2018 and then discusses the strategies that are shaping the PE marketplace in 2019. The final section of the report discusses the increase in PE multiples compared to the public market. Is there a fundamental shift taking place?
This 25-page report from Debevoise & Plimpton explores several recent industry developments of particular interest to US and European investors.
For this 20 page report, BDO has surveyed over 70 senior professionals at PE firms worldwide.
The 56-page report has been authored by EY. It examines the disruption and change taking place in the alternative asset management industry - from technology, to investor expectations, to evolving talent profile needs.
Asset Allocation, Implementation and Governance
In the last 20 years, large institutional investors have allocated an increasing share of their portfolios to private markets. To understand their motivations, BCG has surveyed senior professionals from 20 major funds. The report discusses three key questions that investors should be asking, examining the different investment models they might adopt and the operational infrastructure required.
This 50-page paper from EMPEA is intended to be a practical resources for institutional investors who are allocating to EM private markets. The authors examine the general principles of good governance, before drilling down more specifically to the fund, fund manager, and portfolio company levels. The report also provides a "Good Governance Checklist" for investors who are short of time.
This 14 page report examines the best way to construct an allocation to private equity, with a particular focus on three questions: 1. Given that Private Equity is an illiquid asset, what is the maximum % that should be allocated to the asset class? 2. What are the benefits of diverisification by vintage year, and what is the best way to achieve thst diversification over the long run? 3. Until the target allocation has been reached, where should money awaiting investment be temporarily invested?
Asset allocators are faced with a real conundrum when seeking to optimise a portfolio which includes alternative investments. Traditional portfolio optimisation techniques will over-allocate to alternative asset classes, for two reasons: Firstly, alternative asset classes exhibit significant return dispersion between managers and, secondly, the pooled return indices typically utilized for alternatives will display overly-smoothed returns. In much research, the second issue is addressed, but not the first. This paper discusses a way that performance dispersion risk can be allowed for in the portfolio construction process.
Private Equity Secondary Markets
In this two-page note, Pantheon discusses the trend for General Partners to seek to manage their Limited Partner investor base more actively. Approved-buyers lists, while not yet commonplace, are starting to emerge as a framework to enable GPs to achieve a greater level of comfort and control.
This primer on secondaries, written in late 2017, examines the history and future of the secondary market. The paper addresses concerns around a perceived supply/demand imbalance and the level of pricing in the market.
The PE secondaries market has specific advantages. Investors who access a fund will have a shoter duration and a greater visibility of fund investments. In this three page note, bfinance surveys the marketplace and provides a brief primer.