Man Group challenges the perceived advantages of private equity, arguing that much of its appeal stems from valuation smoothing rather than true diversification or superior risk-adjusted returns. The paper suggests a meaningful portion of returns may be replicated using public equities, raising questions about whether investors are overpaying for illiquidity and perceived stability.
Hedging The Real Risk Of Private Equity
Man Group
Peter van Dooijeweer
Research
9 Pages
Key Takeaways
Illiquidity Premium Questioned: Over $1.43 trillion raised in 5 years reflects demand, yet smoothing effects may overstate stability and understate true volatility in private equity returns.
Replication Feasibility Highlighted: A significant share of PE returns can be mimicked using public equities, potentially reducing fees versus traditional PE structures by several hundred basis points.
Diversification Benefits Overstated: Apparent low drawdowns are partly due to infrequent pricing, with underlying risks more correlated to public markets than commonly assumed over long horizons.
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