TY - JOUR T1 - Asset Allocation with Private Equity JF - The Journal of Private Equity SP - 81 LP - 87 DO - 10.3905/jpe.2005.516861 VL - 8 IS - 3 AU - Richard M. Ennis AU - Michael D. Sebastian Y1 - 2005/05/31 UR - https://pm-research.com/content/8/3/81.abstract N2 - This article examines the question of allocation to private equity from three perspectives; portfolio selection theory, investor compatibility, and practice. The proportion that private equity makes up of the total investable capital market is discussed, and an expected return for private equity is developed using an equilibrium pricing framework. Based on this expectation, mean-variance analysis indicates that private equity's potential to improve portfolio diversification exists primarily within equity portfolios rather than balanced ones. Investor compatibility issues are discussed, along with the results of studies of private equity allocations among public, corporate, and endowment/foundation funds. Some investors, the authors conclude, will rightly decide to exclude private equity from their portfolio. For others, private equity holdings of a few percentage points may be appropriate. Only moderate-size, equity-oriented funds with exceptional private equity investment skill, strong board-level support, and adequate staff resources should consider allocations of 10% or more. ER -