Spreading Risks — Thinly and Thickly

Thomas Meyer
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Thomas Meyer: LDS Partners

Chapter Chapter 13 in Private Equity Unchained, 2014, pp 133-148 from Palgrave Macmillan

Abstract: Abstract According to Modern Portfolio Theory (MPT), the more diversified a portfolio and the more uncorrelated its components, the less the risk stems from each of its components. Diversification is a common thread in the investment approach of many institutional investors. This is supported by respected academics such as Benoit Mandelbrot, who recommended ‘broad, very broad diversification with small equal allocations rather than what modern financial theory stipulates’.1 At the LP’s portfolio level, this can be achieved through different fund types, industries, geographies and vintage years, which is also seen as giving a considerable protection against adverse currency movements.

Keywords: Venture Capital; Institutional Investor; Private Equity; Fund Manager; Asset Class (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-28682-6_13

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DOI: 10.1057/9781137286826_13

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