Strategic Asset Allocation with Illiquid Alternatives

  title={Strategic Asset Allocation with Illiquid Alternatives},
  author={Eric Luxenberg and Stephen P. Boyd and Mykel J. Kochenderfer and Misha van Beek and Wen Cao and Steven Diamond and Alex Ulitsky and Kunal Menda and Vidy Vairavamurthy},
  journal={Proceedings of the Third ACM International Conference on AI in Finance},
We address the problem of strategic asset allocation (SAA) with portfolios that include illiquid alternative asset classes. The main challenge in portfolio construction with illiquid asset classes is that we do not have direct control over our positions, as we do in liquid asset classes. Instead we can only make commitments; the position builds up over time as capital calls come in, and reduces over time as distributions occur, neither of which the investor has direct control over. The effect… 

Figures from this paper



Portfolio Choice with Illiquid Assets

We present a model of optimal allocation to liquid and illiquid assets, where illiquidity risk results from the restriction that an asset cannot be traded for intervals of uncertain duration.

Optimal Allocation to Private Equity

We study the asset allocation problem of an institutional investor (LP) that invests in stocks, bonds, and private equity (PE). PE investments are risky, illiquid, and long-term. The LP repeatedly

The Endowment Model and Modern Portfolio Theory

We develop a dynamic portfolio-choice model with illiquid alternative assets to analyze conditions under which the “Endowment Model,” used by some large institutional investors such as university

Multi-Period Trading via Convex Optimization

A framework for single-period optimization, where the trades in each period are found by solving a convex optimization problem that trades off expected return, risk, transaction cost and holding cost such as the borrowing cost for shorting assets.

Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case

OST models of portfolio selection have M been one-period models. I examine the combined problem of optimal portfolio selection and consumption rules for an individual in a continuous-time model

Risk Adjustment in Private Equity Returns

This article reviews empirical methods to assess risk and return in private equity. I discuss data and econometric issues for fund-level, deal-level, and publicly traded partnerships data.

Illiquid Alternative Asset Fund Modeling

A financial model that enables institutional investors to project future asset values and cash flows for funds in illiquid alternative asset classes such as venture capital, leveraged buyouts, real

Valuing Private Equity

We investigate whether the performance of private equity (PE) investments is sufficient to compensate investors (LPs) for risk, long-term illiquidity, management, and incentive fees charged by the

Valuing Private Equity Investments Strip by Strip

We propose a new valuation method for private equity investments. It first constructs a cash-flow replicating portfolio using cash-flows on various listed equity and fixed income instruments

Model predictive control for portfolio selection

It is proved that MPC is a suboptimal control strategy for stochastic systems which uses the new information advantageously and thus, is better than pure optimal open-loop control.