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Asset allocation and Private Equity – an institutional perspective

Asset allocation and Private Equity – an institutional perspective. Argentum Private Equity Conference. Elias Korosis. PE Asset Allocation Research : a ‘renaissance’ level of understanding?.

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Asset allocation and Private Equity – an institutional perspective

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  1. Asset allocation and Private Equity – an institutional perspective Argentum Private Equity Conference • Elias Korosis

  2. PE Asset Allocation Research: a ‘renaissance’ level of understanding? • “I cannot conceive how different Nations could agree to put an Imaginary Value upon any thing, especially upon Silver, by which all other Goods are valued; Or that any one Country would receive that as a Value, which was not valuable equal to what it was given for; Or how that Imaginary Value could have been kept up.” John Law on the value of silver (1705), from Money and Trade Considered

  3. A quick journey through portfolio design history • Source: Citi Prime Finance

  4. Portfolio design – the future? • (ATP example) • (Citi PF illustration) Hedging portfolio Is designed to hedge ATP’s pension liabilities as efficiently as possible to offset changes in interest rates. The portfolio mainly comprises of interest-rate swaps and long-dated bonds Investment portfolio Is required to generate an absolute return that is sufficient to ensure growth in our reserves so that we may preserve the long-term purchasing power of pensions Beta portfolio The beta portfolio, totalling DKK309.0bn, is used primarily to assume market risks. Investments are distributed among five risk classes. Over time, this type of investment generates higher returns than risk-free investments because investors charge a premium for assuming investment risks. The return is seen as compensation to investors for accepting risk and is known as “beta” Alpha portfolio The alpha portfolio, totalling DKK7.6bn, is actively invested, e.g. through the purchase and sale of invidividual equities that are expected to show the greatest rise or fall over a given time horizon. The return achieved by active asset management is known as “alpha”. The return on the alpha portfolio is independent of financial market ups or downs • Source: ATP (www.atp.dk ), Citi Prime Finance

  5. High-level portfolio design framework

  6. Discussion of the role of private equity in an institutional portfolio – Key considerations

  7. Private Equity in sample institutional portfolios (contemporary example) • Source: West Midland Pension Fund (http://www.wmpfonline.com)

  8. Private Equity in sample institutional portfolios (risk-aligned) • Source: Calpers (http://www.calpers.ca.gov), ATP (www.atp.dk )

  9. Fin • Source: Lyrique Private Equity

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