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Private Markets: Q1 2020 Update

Measuring and Managing Performance

Illiquidity and irregularity can make the management of private market allocations much more difficult than rebalancing a portfolio of stocks and bonds. A private equity or venture capital fund's positive cash flows are typically heavily weighted towards the end of its lifespan which creates a J-curve effect (and a drag on limited partners' portfolios) in the first few years. On top of this, there are also capital calls, sporadic liquidity events, and reinvestment needs for limited partners to be mindful of. Asset owners and other multi-asset investors that are limited partners in these funds should look to develop a commitment pacing plan that takes into account many of these issues. 

This selection of private markets white papers predominantly covers the outlook for private market investments in 2021, although a good number also focus on the management and measurement of private market returns.

J curve private markets


Endowments: The gap between target and actual returns (Nuveen, 2020)

This paper by Nuveen recommends that in a low-rate environment, endowment funds adopt a risk-factor approach to asset allocation instead of one that is benchmark-relative. Within the paper, there is also a lengthy discussion about private market illiquidity and the management of liquidity via a rebalancing policy.

Myths of Private Equity Performance (Enterprising Investor)

This four-part article series on private markets discusses private equity performance reliability, replicating returns, and benchmarking.

Private Markets: Emerging reinforced after the crisis? (Amundi, Dec 2020)

For compliance reasons, this paper is NOT accessible in the United States

Amundi analyses private market fund flows and the outlook for the asset class over the course of 2021.

Private Equity Analysis – Why less is not more (State Street, 2021)

This roundtable discussion focuses on benchmarking in private equity, its importance to limited partners, and methodologies for benchmark assessment.

Pan-European Private Equity Report (Invest Europe, 2020)

This collaborative paper from Arthur D. Little and Invest Europe explains the results of a recent survey on European private equity.

The Promise of Private Equity in Asia-Pacific (Boston Consulting Group, 2020)

Boston Consulting Group describes changes in the APAC private equity industry as a result of COVID-19. Digital adoption and changes in consumer behaviour could bring about new types of opportunities, as well as accelerate existing trends.

Private Equity Perspectives: Flattening the J-curve (Vanguard, Dec 2020)

The authors of this brief Vanguard article discuss setting cash flow expectations to match the J-curve of private equity investments, and the need for investors to build a strategic program for allocating to this asset class.

The Case for Investing in Private Corporate Debt (M&G Investments, 2021)

For compliance reasons, this paper is only accessible in certain geographies

In this paper, M&G Investments makes the case for private debt allocations by pension schemes. It provides specific insight into leveraged loans and direct lending.

Are Private Equity Investors Fooled by IRR? (2020)

Private equity firms can manipulate the very distributions and capital calls that impact their internal rates of return. This paper examines how sophisticated investors can better account for this phenomenon.

Alternative Investments: Improving portfolio performance (UBS AM, 2020)

A sizeable portion of this UBS Asset Management paper relates to private markets and their recent performance, including a section on the J-curve.

Value Creating in Private Equity (2020)

How is value actually created by private equity funds after making an investment? The authors attempt to shed some light on the subject, looking at various fund types within the PE universe.

Private Placement Debt Investments (MetLife Investment Management, Dec 2020)

MetLife Investment Management reviews the history of private placements before examining the characteristics of these investments.  

2021 Alternative Investment Outlook (Wellington Management)

Looking ahead to the rest of 2021, Wellington Management takes the temperature of private equity markets, including brief updates on IPOs and late-stage deals.

Private Equity Findings: Insights from PE research (Coller Capital, 2020)

Coller Capital's 32-page magazine contains several articles on topics relevant to private equity and venture capital investors.

U.S. IPO Market: SPACs drive 2020 IPOs to a new record (FactSet, Jan 2021)

In this article, FactSet reviews 2020 US IPO activity. The majority of the IPOs this past year were funded by Special Purpose Acquisition Companies (SPACs).

Building and Maintaining an Exposure to Private Markets (PGIM IAS, 2020)

In order to maintain sufficient allocations to private markets, investors need to develop a proper commitment pacing plan. This paper by PGIM IAS explains further.

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