Navigating Uncertainty: Diversification for the Alpha-Centric Portfolio

By: Barry Griffiths and Sean Silva

As allocations to private equity have increased in recent years, institutional investors have begun to face three related challenges:

  1. How can an investor construct a private equity portfolio that adds value compared to investments in more liquid asset classes?

  2. How can the investor execute such a strategy?

  3. What kind of monitoring program is appropriate for measuring this added value?

Historically, investors have used a variety of ad hoc approaches to these problems. Some investors have created top-down style buckets (e.g. US LBO versus European LBO versus global VC) and mandated some aggregate number of commitments per bucket each year. Other investors only invest with private equity groups that are thought to offer exceptional opportunities. Some investors have tried to measure the performance of each fund, or each style bucket, on a yearly basis, while others have used longer periods. Each of these approaches has its pros and cons, but the relationships between them have often been misunderstood.

In recent years the tools available for measuring performance in private equity have improved substantially, and the relationships between private equity investments and other asset classes have been substantially clarified. In this paper Landmark outlines some considerations private equity investors should take into account when constructing, implementing and monitoring a private equity portfolio.

The above is a brief synopsis of the white paper referenced in the title. It is not itself a complete record of that paper and cannot be relied upon in isolation. A copy of the full white paper is available upon request.

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