NEW YORK, Nov. 19, 2019 /PRNewswire/ — Neuberger Berman, a private, independent, employee-owned investment manager, is proud to be a founding research partner of the Defined Contribution Alternatives Association (DCALTA), which recently partnered with the Institute for Private Capital (IPC) to publish a research paper outlining potential solutions for incorporating alternative assets into diversified and time-varying portfolios.
The paper, entitled Why Defined Contribution Plans Need Private Investments, concludes that investing in private funds increases average portfolio returns and reliably increases Sharpe ratios, or return per unit risk in 100% of cases. The results suggest that typical diversified portfolios could benefit from allocations to private and alternative investments, such as private equity and venture capital.
“As DC plans look to provide more of a ‘DB experience’ to their participants, we believe including alternative exposure within their asset allocation offerings is a natural progression,” said Michelle Rappa, Managing Director at Neuberger Berman and a DCALTA Board Member who contributed to the paper.
While the results favor the advantages of including private investments in diversified and time-varying portfolios, they also suggest that the extent of the benefit depends on the type of private investment. As such, the paper seeks not only to illustrate potential return characteristics and diversification benefits, but also to offer allocation strategies to guide investment decision making.
The paper utilizes a comprehensive sample of more than 2,500 U.S. private equity funds to create a hypothetical simulation of historical performance for diversified portfolios that include allocations to private fund assets. The results are robust, suggesting that they may be feasible in practice for many investor types.
To learn more about how defined contribution plans may benefit from incorporating alternative assets, read the full research paper online.
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