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A Dynamic Model of Private Asset Allocation

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Listed:
  • Hui Chen
  • Giovanni Gambarotta
  • Simon Scheidegger
  • Yu Xu

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.

Suggested Citation

  • Hui Chen & Giovanni Gambarotta & Simon Scheidegger & Yu Xu, 2025. "A Dynamic Model of Private Asset Allocation," Papers 2503.01099, arXiv.org.
    • Handle: RePEc:arx:papers:2503.01099
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