Where does private-equity premium come from? Can private-equity performance be reproduced by leveraging up public-equity investments? What’s private equity’s outlook given that cheap borrowing is not expected to return in the foreseeable future? 

Getting a read on leverage in private-equity portfolio companies is key for institutional investors who want to better understand risk and return drivers. We examined trends over the past decade, comparing buyout companies to public small caps. 

Private equity outperformed public equity from 2014 to 2023. But discussing performance without considering risk does not provide a full picture for informed asset allocation. We look at three measures of risk-adjusted returns.

Investors who commit capital to private-asset funds must provide money when the fund managers buy portfolio companies, but receive it back only when the managers sell. The uncertain timing and size of these cash flows demand careful liquidity management.

Private infrastructure is a popular element of institutional capital allocations, and increased focus on renewable or carbon-neutral infrastructure may mean significant new investment opportunities. What role could it play in a multi-asset-class portfolio?

Private-infrastructure investments are often treated as comparable to relatively safe long-duration bonds with attractive yields, but this approach can mislead investors as they evaluate risk, yield and portfolio hedges.

MSCI’s Barra Private Real Estate Model (PRE2), Barra Private Equity Model (PEQ2) and MSCI Private Infrastructure Model (PIN1) have advanced the understanding of investments in global private assets. Private assets were once considered low-risk investments uncorrelated with most public assets due to the smoothness in private asset valuations. With innovative statistical methodology, the MSCI private asset models reveal the intrinsic risk in private assets, show large exposures to systematic...

Real estate has not historically been immune to growth shocks, but the impact of COVID-19 has been harder to establish than it has for public equities. Discounted-cash-flow scenarios may help investors understand the potential sensitivity of their portfolios.

What may be happening to the value of portfolios of private assets during the COVID-19 crisis? We used MSCI’s private-equity model, which integrates data on private assets from our partner Burgiss, to try to shed some light.

Private-capital funds enjoyed record inflows from 2014 to 2018, as asset owners sought high-returning assets that had low correlations to traditional public asset classes. Did private capital deliver?

Many investors view hedge funds as a way to generate returns uncorrelated with other parts of the portfolio. We found that performance and sources of performance varied, but that exposure to traditional and factor investing strategies accounted for the majority of a typical hedge fund’s returns. Should hedge fund investors pay particular attention to fund selection?

This Model Insight describes the introduction of private asset models into the time-series-based RiskMetrics’ RiskManager. The framework consistently combines the Barra Private Asset Models, based on low-frequency private asset returns, alongside the high-frequency models of other asset classes.

Growth Drives Long-run Risk and Return

The home bias of real estate investing is starting to change. The world’s largest Sovereign Wealth and Pension Funds are leading the change with explicit global real estate investment mandates seeking to exploit the richer global opportunity set and its diversification benefits. In this Research Insight, we use the Barra Private Real Estate Model (PRE2) to examine the drivers of risk and return in the international real estate markets, and find that fragmentation of the global markets has led...

In this Model Insight, we present the latest Barra Private Equity Model (PEQ2), which represents a major advance in understanding the drivers of risk and return in global private equity. We find a high degree of systematic risk in private equity, but also large opportunities for global diversification and active risk when compared with public equity. Incorporated in the Barra Integrated Model, PEQ2 provides a unique, like-to-like view of private equity investments among all asset classes...

Global private real estate represents significant opportunities for investors, but also major challenges, similar to global equity 30 years ago. A lack of information, and the smoothness of appraisal-based valuations, have left investors and risk managers guessing about the behavior of global real estate: a wide-range of speculation is commonplace, including the view that real estate is a low-risk, high-return diversifier. In this Model Insight, we shed light on this misunderstood asset...

This document contains research notes for three new Barra single country equity models: the Kuwait Equity Model (KWE1), the Qatar Equity Model (QAE1), and the United Arab Emirates (UAE) Equity Model (AEE1). Assets in these markets are included in the latest version of Barra Integrated Model (BIM207), via these new models. Along with our existing single country models for Bahrain, Oman, and Saudi Arabia, these new models complete our coverage of equities in the six Gulf Cooperation Council...

This report introduces the Multiple-Horizon Australia Equity Model, available in two versions, shortterm (AUE3S) and long-term (AUE3L). This model has been constructed explicitly to meet the needs of near-term (several-month) and long-term (annual) investors. Both versions employ daily returns data and account for serial correlations in aggregating daily factor returns to longer horizons. Daily data provide denser and more detailed intra-horizon volatility information than monthly returns...

In this article, we examine the relationship between macroeconomic and fundamental factors and demonstrate how fundamental factor models can be used to extract the macroeconomic perspective and enhance our understanding of the common sources of portfolio risk and return. We start by assessing the importance of macroeconomic factors, both from a theoretical as well as a practical perspective, and we discuss the reasons why we have seen renewed interest in these factors in recent years....