Volume 5 page 118 question. 29 answer is B saying that PE provides high diversification.Mock exam 2014 case Duke q1 writes PE provides low diversification benefit. What is right?
Is it the case that REIT’s and hedge funds provide more diversification benefits than PE
Yeah I got this correct but was doing EOC now and they are saying it provides high diversification. I assume then it’s all relative in this case…
It’s my understanding that the primary benefit of adding PE to a portfolio is long-term return enhancement with some diversification benefits. As a stand-alone investment being considered as an addition to a portfolio of stocks and bonds, PE as an asset class will provide diversification benefits - sure. But when compared to a hedge fund (which seeks absolute return uncorrelated to the prevailing equity market conditions), PE will offer less of a diversification benefit because of it’s higher relative correlation to the equity markets (i.e. one of the primary exit strategies is an IPO).
I think from the readings PE has around 70% correlation to bond and stocks. While hedge funds, real estate and CTAs have less than 10%. I think we all just need to revise this stuff, to see the properties of all asset classes.
AI is super important its only 100pages but easily can be 5%. Nailed in L2 last year, hence revising again.