How allocators are complicit in the manipulation of PE returns

Some private equity investors get “phony happiness” from overstated and smoothed interim returns, according to new research from Ph.D. student Blake Jackson, Ken & Linda McGurn Professor David Ling and Susan M. Cameron Professor Andy Naranjo. 

For example, they found that underfunded pensions are more likely to invest a higher portion of their portfolios to private real estate funds than to funds that invest in equivalent publicly traded securities. Jackson told Institutional Investor that investing in private markets funds “can artificially reduce the reported volatility of [public pension] funds.”

Read more about their findings in this story from Institutional Investor.