2021 PERC Symposium Best Paper Award
The Private Equity Research Consortium (PERC) recently convened on November 11-12, in Chapel Hill for the 13th annual research symposium. Over the course of two days, academic researchers and industry practitioners gathered for a discussion of the most pressing issues in private equity. In keeping with tradition, attendees voted for the Best Paper presented at PERC. This year’s award goes to Nicola Giommetti and Morten Sørensen for their paper Optimal Allocation to Private Equity.
This paper studies the asset allocation problem of an institutional investor (LP) that invests in stocks, bonds, and private equity (PE) and presents the first formal analysis of an LP’s investment problem with ongoing commitments to an arbitrary number of private equity (PE) funds. The authors find that PE investments substantially affect the LP’s optimal allocations. LPs with higher and lower risk aversion follow qualitatively different investment strategies, and PE allocations are not monotonically declining in risk aversion. They extend the model with a secondary market for PE partnership interests to study the implications of trading in this market and the pricing of NAV and unfunded liabilities.