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Private Equity: Fooling Some People All the Time?

Debunking the Myth of Uncorrelated Returns

Nicolas Rabener
10 min read
20 Jan 2020

SUMMARY

  • Private equity return data should be viewed with caution
  • Returns are likely overstated while volatility is understated
  • Private equity returns are highly correlated to public equities

TWO MAGIC WORDS

“This time is different” might be the four most dangerous words in investing. “Uncorrelated returns” may just be the two most lucrative. These seven syllables have been applied across the span of the alternative investment industry, from hedge funds and venture capital (VC), to private equity and real estate.

Investors have allocated more than $10 trillion to these alternative investments, paying high fees while hoping that these provide positive returns and diversification benefits for traditional stock and bond portfolios.

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