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Capital Dynamics study quantifies the diversification effects of private equity

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Capital Dynamics, a global private assets manager, today publishes a study on the correlation between private and public equity. The study quantifies the diversification effects of private equity as a component of the overall equity portfolio.

Mauro Pfister, Senior Director and Head of Solutions, comments:

"There is a "received wisdom" in the market that private equity helps to diversify an investment portfolio. However, until now, little research has been conducted to examine the figures behind this claim, and to investigate how and why private equity can do this. Our analysis, based on proprietary data of Capital Dynamics and Colmore, as well as other data sources, underscores the diversification benefits that an allocation to private equity can provide to an investor’s portfolio."

Key report findings

Private equity portfolios can diversify investors’ equity allocation when constructed properly

  • Over the past 15 years, the average correlation between the European and US buyout markets and public equity has been 80%. Over the same period, the correlation of the European buyout market has been considerably lower than that of the US buyout market
  • Concentrated private equity portfolios exhibit lower correlation. With a deliberate fund selection process, over-diversification can be avoided
  • The authors believe that the fundamental differences in the private and public equity investment models will remain, implying that the diversification benefits of investing in private equity will persist in the future
  • The report also highlights that private equity outperformed public equity due to the following fundamental differences in these two asset classes:
  • The active ownership model in private equity plays a major role in outperformance. Private equity ownership can drive growth and operational improvements as well as ensure close alignment of interest between the GP and management of the company
  • Private equity firms can obtain unique access to internal information of their investment targets during the due diligence process and exploit inefficiencies in private markets
  • The much larger universe of private companies compared with quoted companies can provide more investment opportunities
  • Enhanced investment selection, exit timing and negotiation skills provided by private equity managers can help create outperformance over public equity

For further information please contact

Carolin Hirschbiel, Head of Marketing and Communications
+41 41 748 8422
communication@capdyn.com

Mauro Pfister, Head of Solutions
+41 41 748 8421
mpfister@capdyn.com

About Capital Dynamics
Capital Dynamics (the "Firm") is an independent, global asset manager, investing in private equity as well as clean energy and infrastructure. We are client-focused, tailoring solutions to meet investor requirements. The Firm manages investments through a broad range of products and opportunities including separate account solutions, investment funds and structured private equity products. Capital Dynamics currently has over USD 27 billion in assets under management/advisement1.

Our investment history dates back to 1988. Our senior investment professionals average over 20 years of investing experience across the private equity spectrum.2 We believe our experience and culture of innovation give us superior insight and help us deliver returns for our clients. We invest locally while operating globally from our London, New York, Zug, Tokyo, Hong Kong, San Francisco, Munich, Birmingham, Seoul and Scottsdale offices.

1Capital Dynamics comprises Capital Dynamics Holding AG and its affiliates; assets under management/advisement, as of September 30, 2016 include assets under discretionary management, advisement (non-discretionary), and administration across all Capital Dynamics affiliates. 2Average years of experience held by Capital Dynamics’ Managing Directors and Directors in Investment Management.

 

About Colmore
Colmore provides investors real time insight into their private asset portfolios. Using cutting edge technology, we monitor over USD 2 trillion in portfolio company assets, servicing over 1,400 limited partners. We are proud to be one of the largest independent service providers for limited partner reporting, quantitative fee tracking, fee validation services and portfolio monitoring. 95% of Colmore staff have worked previously at a GP or LP.

 

Disclaimer
This document is provided for informational and/or educational purposes. The opinions expressed are as of April

2017 and may change as subsequent conditions vary. The information herein is not to be considered investment advice and is not intended to substitute for the exercise of professional judgment. Recipients are responsible for determining whether any investment, security or strategy is appropriate or suitable and acknowledge by receipt hereof that neither Capital Dynamics AG nor its affiliates (collectively, "Capital Dynamics") has made any determination that any recommendation, investment, or strategy is suitable or appropriate for the Recipient’s investment objectives and financial situation. A reference to a particular investment or security by Capital Dynamics is not a recommendation to buy, sell or hold such investment or security, nor is it an offer to sell or a solicitation of an offer to buy such investment or security.

Capital Dynamics may have a financial interest in investments or securities discussed herein or similar investments or securities sponsored by an asset management firm discussed herein.

The information herein has been or may have been provided by a number of sources that Capital Dynamics considers to be reliable, but Capital Dynamics has not separately verified such information. Nothing contained herein shall constitute any representation or warranty and no responsibility or liability is accepted by Capital Dynamics as to the accuracy or completeness of any information supplied herein. Before relying on this information, Capital Dynamics advises the Recipient to perform independent verification of the data and conduct his own analysis hereto with appropriate advisors.

The opinions, beliefs and predictions expressed herein are those of Capital Dynamics. Analyses contained herein are based on assumptions which if altered can change the conclusions reached herein. Capital Dynamics reserves the right to change its opinions or assumptions without notice.

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