Maximizing the Opportunity in Private Markets
In a new white paper The Beneficient Company Group Ltd and Oxford Economics explore how investors can maximize the opportunity in private markets amid a subdued economy and the risks they must navigate in doing so.
Portfolio construction and rebalancing around market cycles is a widely accepted and important approach in public asset management; for similar reasons this approach can benefit alternative asset investors. Many investors in private markets have traditionally relied on fund manager skill, so-called manager selection, rather than looking more holistically at their allocations and diversifying broadly across the private asset class. Yet we know that different private fund strategies tend to outperform in certain economic and market environments; venture capital, for instance, outperformed in the late 1990s but then struggled in the dot-com correction afterwards.
Meanwhile, investing during the next five years is likely to be characterized by low nominal returns and uneven asset performance, while the hardest-hit sectors during the pandemic could benefit from a rebound in valuations. In this paper, we utilize Ben’s portfolio allocation framework customized to private assets to analyze and forecast the risk/reward profile of private fund strategies. In accordance with Oxford Economics’ baseline macroeconomic forecasts, our analysis suggests that private real estate and natural resource funds currently are relatively attractive portfolio overweights. However, stretched equity valuations suggest caution when allocating towards venture capital strategies in the near-term, when the industry is at record levels of investment capital and competition for deals that are priced at significant historical premiums.
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