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Spreading Risks — Thinly and Thickly

In: Private Equity Unchained

Author

Listed:
  • Thomas Meyer

    (LDS Partners)

Abstract

According to Modern Portfolio Theory (MPT), the more diversified a portfolio and the more uncorrelated its components, the less the risk stems from each of its components. Diversification is a common thread in the investment approach of many institutional investors. This is supported by respected academics such as Benoit Mandelbrot, who recommended ‘broad, very broad diversification with small equal allocations rather than what modern financial theory stipulates’.1 At the LP’s portfolio level, this can be achieved through different fund types, industries, geographies and vintage years, which is also seen as giving a considerable protection against adverse currency movements.

Suggested Citation

  • Thomas Meyer, 2014. "Spreading Risks — Thinly and Thickly," Palgrave Macmillan Books, in: Private Equity Unchained, chapter 0, pages 133-148, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-28682-6_13
    DOI: 10.1057/9781137286826_13
    as

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