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arXiv · 2503.01099

A Dynamic Model of Private Asset Allocation

Hui Chen·Giovanni Gambarotta·Simon Scheidegger·Yu Xu
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Abstract

We build a state-of-the-art dynamic model of private asset allocation that considers five key features of private asset markets: (1) the illiquid nature of private assets, (2) timing lags between capital commitments, capital calls, and eventual distributions, (3) time-varying business cycle conditions, (4) serial correlation in observed private asset returns, and (5) regulatory constraints on certain institutional investors' portfolio choices. We use cutting-edge machine learning methods to quantify the optimal investment policies over the life cycle of a fund. Moreover, our model offers regulators a tool for precisely quantifying the trade-offs when setting risk-based capital charges.

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Hui Chen, Giovanni Gambarotta, Simon Scheidegger, Yu Xu. 2025-03-03. A Dynamic Model of Private Asset Allocation. https://arxiv.org/abs/2503.01099

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