Constructing optimized private equity programs

As a result of the growth of private markets, there is an increasing need to take a more holistic and analytical approach in building private market portfolios, benefitting from the various investment types available and differentiating between more alpha oriented strategies in private markets.

For most institutional investors, primary fund commitments form the fundamental component of a well-planned, scalable and diversified private equity program. Opportunistic strategies such as secondaries and co-investments are derived from primaries and now provide a more nuanced approach to construct a private equity program. We focus on these investment types within the private equity market, although we will also touch on the blurring of lines between private equity and other asset classes, as well as overlaps between these investment types.

We highlight the benefits of both secondaries and co-investments in a broader private equity portfolio and perform quantitative analyses to examine how these investment types impact performance, pacing, J-curve mitigation and risk-reward characteristics.

Complementary profiles

Cumulative net cash flows over time for three transaction types

We find that a balanced, thoughtfully constructed program of primaries, secondaries and co-investments offers clear synergies and has the potential to deliver superior risk-adjusted returns beyond what each of the three transaction types can achieve in isolation. Ultimately, each investor has their own objectives, hence the optimal mix across transaction types, strategies and geographies will depend on those objectives.