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The Journal of Wealth Management

The Journal of Wealth Management

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Primary Article

Private Equity Performance Measurement and Its Role in a Portfolio

Li Zhu, Joseph H. Davis, Francis M. Kinniry and Nelson W. Wicas
The Journal of Wealth Management Summer 2004, 7 (1) 27-34; DOI: https://doi.org/10.3905/jwm.2004.412352
Li Zhu
An investment analyst in Investment Counseling & Research at The Vanguard Group, Inc. in Malvern, PA. li_zhu@vanguard.com
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Joseph H. Davis
An investment analyst in Investment Counseling & Research at The Vanguard Group, Inc. in Malvern, PA. joseph_h_davis@vanguard.com
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Francis M. Kinniry
A principal in Investment Counseling & Research at The Vanguard Group, Inc. in Malvern, PA. francise_m_kinniry_jr@vanguard.com
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Nelson W. Wicas
A principal in Investment Counseling & Research at The Vanguard Group, Inc. in Malvern, PA. nelson_w_wicas@vanguard.com
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Abstract

Based on analysis of private equity performance, this article challenges the widespread assumption that private equity investments can provide both exceptional returns and enhanced diversification. Private equity investments entail significant and unique risks, including a necessarily long investment horizon, rigid liquidity constraints, and high bankruptcy rates among portfolio companies, that can make it difficult for investors to realize the potentially superior performance of private equity investments. Furthermore, the article stresses that diversification should not be considered a major benefit of private equity investing. Rather, private equity should be treated as but one small component of a portfolio's allocation to all equity investments, private and public.

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The Journal of Wealth Management
Vol. 7, Issue 1
Summer 2004
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Private Equity Performance Measurement and Its Role in a Portfolio
Li Zhu, Joseph H. Davis, Francis M. Kinniry, Nelson W. Wicas
The Journal of Wealth Management Apr 2004, 7 (1) 27-34; DOI: 10.3905/jwm.2004.412352

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Private Equity Performance Measurement and Its Role in a Portfolio
Li Zhu, Joseph H. Davis, Francis M. Kinniry, Nelson W. Wicas
The Journal of Wealth Management Apr 2004, 7 (1) 27-34; DOI: 10.3905/jwm.2004.412352
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