Asset Allocation with Illiquid Private Assets

PGIM Institutional Advisory & Solutions

February 2018

Many investors are comfortable with the notion of segmenting their portfolios into liquid and illiquid buckets. But what is the optimal illiquid-liquid asset mix for a long-horizon investor? PGIM's IAS group has developed a simulation-based asset allocation framework designed to help CIOs make more informed decisions concerning their strategic investments in illiquid private assets. This framework can be customized to incorporate:

  • Liquidity requirements
  • Risk-return assumptions
  • Time horizon
  • Confidence level 

Specifically, our model can help to address the following investor questions:

  • What is the optimal allocation between liquid and illiquid assets?
  • What is the cost of the investor's liquidity constraint?
  • What is the marginal cost of increased liquidation certainty?
  • How does the illiquid-liquid asset allocation decision affect the allocation within the liquid asset portfolio?
  • How do other factors (e.g., the magnitude of any illiquid asset return advantage, the sensitivity of liquidation requirements) impact the allocation results?


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