SAA: Rethinking the Role of Private Markets

“Plans are nothing; planning is everything” – Dwight D. Eisenhower

September 25, 2018

Since at least the late 1990s, institutional investors have been allocating more capital to private markets. For some, the low interest rates that have come to characterize markets following the GFC served as the catalyst; others believed that returns from equities would moderate along with global GDP growth.

Before the surge in popularity of private markets, the core-satellite approach to portfolio construction was appropriate. Composed primarily of low-cost investments, the core related to an institution’s strategic asset allocation. Private markets, however, were regarded purely as alpha-generating satellites—strategies that were still too exotic to be anything more than tactical deployments.

Our approach to deriving an SAA for private markets is not a plug-and-chug operation. Rather, we describe a series of intuitive steps that we hope make the process less intimidating and more transparent. At every step, portfolio management teams need to choose certain inputs and models, and to master success factors.

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