We study the portfolio problem of an investor (LP) that invests in stocks, bonds, and private equity (PE) funds. The LP repeatedly commits capital to PE funds. This capital is only gradually contributed and eventually distributed back to the LP, requiring the LP to hold a liquidity buffer for its uncalled commitments. Despite being riskier, PE investments are not monotonically declining in risk aversion. Instead, there are two qualitatively different investment strategies with intuitive heuristics. We introduce a secondary market for PE partnership interests to study optimal trading in this market and implications for the LP’s optimal investments.
|Published - 2023
|ASSA 2023 Annual Meeting - Hilton Riverside, New Orleans, United States
Duration: 6 Jan 2023 → 8 Jan 2023
|ASSA 2023 Annual Meeting
|06/01/2023 → 08/01/2023