Optimal Portfolio Size for Private Equity

March 2022

Our research found that the average number of funds invested in per year, as well as the overall allocation to private equity, are growing in recent years. In addition, there is no clear connection between the number of commitments each year and long-term private equity returns. As expected, the number of funds increases with pension plan size. However, this does not directly lead to higher or lower returns. We did find that investing in more funds per year results in lower return volatility. That is, diversification can mitigate the risk of experiencing substantially sub-par returns.

While plans with more GPs have generally performed better, we believe this is more likely the result of program size and maturity. We believe the number of GPs an investor chooses to partner with should be based on best practices and other factors that vary for each investor.

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