Friday, March 15, 2024

Private equity dispersion a key risk


The table above is from the CAIS group and shows another risk from private equity beyond the standard deviation of returns over time. There is large dispersion  in return, much more than what is seen with traditional asset and hedge funds. Simply put, the risk of picking the wrong manager is much higher in the private equity space. 

The median return for private equity may be higher than traditional and hedge fund managers but the downside risk is more significant. Investor disappointment versus the median can be significant. This requires extra due diligence on the part of investors.  Yes, the upside from picking the right manager is higher, but everyone cannot be above average.

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