Private portfolio attribution analysis

Abstract

There are many methods for conducting performance attribution with portfolios containing only liquid assets. A lack of periodic asset return data and a clear definition of what constitutes an appropriate market benchmark thwarts efforts to perform similar types of attribution analyses for portfolios of private equity funds (and other illiquid investments). In this article, the authors propose a method for decomposing private fund portfolio performance into effects from timing, strategy selection, geographic focus, sizing of fund allocation, and fund selection attributes. They test the method with a simulation study and derive approximate confidence intervals for assessing attribute selection skill using a large historical dataset of buyout and venture capital funds.