Asset Allocation with Private Equity

Arthur Korteweg and Mark M. Westerfield
Foundations and Trends in Finance 2022, 13(2): 95-204

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Summary

We survey the literature on the private equity partnership arrangement from the perspective of an outside investor (limited partner). We consider the particular institutional details of private equity, and we identify 27 open questions to help guide private equity research forward.

Abstract

We survey the literature on the private equity partnership arrangement from the perspective of an outside investor (limited partner). We examine how the partnership arrangement fits into a broader portfolio of investments, and we consider the methods and difficulties in performance measurement, both at the fund level and at the asset class level. We follow with a discussion of performance persistence and the skill and pricing power of both general and limited partners. We continue by examining the limited partner’s problem of managing commitments and investments over time while diversifying across funds in light of both idiosyncratic and systematic shocks. We close with a summary of recent work on optimal portfolio allocation to private equity. Throughout, we consider how empirical and theoretical work match the particular institutional details of private equity, and we identify 27 open questions to help guide private equity research forward.

Cite as

Korteweg, Arthur, and Mark M. Westerfield. 2022. “Asset Allocation with Private Equity.” Foundations and Trends in Finance 13(2): 95–204. https://doi.org/10.1561/0500000062

BibTeX

@article{KortewegWesterfield2022,
  author  = {Korteweg, Arthur and Westerfield, Mark M.},
  title   = {Asset Allocation with Private Equity},
  journal = {Foundations and Trends in Finance},
  year    = {2022},
  volume  = {13},
  number  = {2},
  pages   = {95--204},
  doi     = {10.1561/0500000062},
  url     = {https://doi.org/10.1561/0500000062}
}

The PDF posted here is the authors’ manuscript (August 2022 draft). The version of record is available from the journal at the DOI above. Updated October 5, 2026.