Forecasting Risk for Illiquid Asset Classes

OpinioPro Selection
By January 13, 2020 18:23

Forecasting Risk for Illiquid Asset Classes

Allocators and investors struggle with measurements of risk for illiquid asset classes, believing that standard deviation and correlation may be understated
due to a lower pricing frequency (quarterly instead of daily) and possible smoothing of valuations.

Statistical methods to “unsmooth” illiquid asset returns are available. We show that risk measures for private equity, private real estate, and private debt are higher when adjusted for smoothing, but in some cases not nearly as high as most allocators believe based upon a popular survey of capital market
assumptions.1 If correct, investors may have a suboptimal underweight to illiquid assets.

OpinioPro Selection
By January 13, 2020 18:23

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