The illiquid assets in client portfolios. Empirical evidence in the private equity sector

The conference aimed to analyze the difficulties that arise when combining liquid and illiquid asset classes.

The returns provided by illiquid assets are driving Wealth Management policies towards increasing the share of private equity within institutional and private clients’ portfolios.

Starting with a snapshot of the dynamics of private equity and its potential for growth in the medium term, attention was focused on the portfolio optimization process, with a specific reference to its key variables and their critical issues.

The figures presented show investors that the market is worthy of their attention: 13% annual growth, over 500 transactions in 2020 and 2021, price increase trends both inbound and outbound.

As to asset allocation, the first topic addressed concerned the correlation between the two asset classes: statistical insights indicate that the decorrelation that has emerged leaves room for planning increased investments in the private equity segment.

Another topic touched upon was the risk/return trade-off and the adequacy assessment of client portfolios.

Based on a portfolio optimization simulation using a sample of 2,000 private equity transactions, the weight of private equity was estimated at more than 20 percent.

Among the many topics addressed in the panel discussion between market practitioners were the role of due diligence in evaluating private assets, the need to invest in dedicated funds and also diversify into real estate and private debt, and the process of tokenization of investments, which allows both a B2C and B2B2C approach by working alongside a bank that intermediates the end investor.

SDA Bocconi School of Management