Leveraging macroeconomic forecasts, Ben’s risk management team develops long-term capital market assumptions (CMA) on a quarterly basis. These assumptions inform proprietary private fund models, which are tailored to each alternative asset class. The team created a scenario analysis based on 2021 conditions and examined two forward-looking five-year projections, a baseline economic forecast and a potential downside scenario, considered a bear scenario.
“In order to demonstrate the benefits of portfolio construction in private assets we leverage our TPM framework to illustrate opportunities available to investors with access to diversified portfolios and liquidity options to execute rebalancing strategies. A key component of a healthy portfolio is the ability to actively rebalance based on available risk/reward trade-offs across market exposures, asset classes, and fund types.”
-Yuri Mushkin Chief Risk Officer, Beneficient
The baseline forecast assumes that the global economy remains stuck in a demand-deficient rut. It assumes that social distancing is relaxed while monetary policy remains accommodative with limited impact on demand and little room for further cuts. And it assumes that both inflation and interest rates will remain low.
The bear scenario explores the impact of a significant resurgence in the virus, associated restrictions on economic activity, a renewed wave of contraction in credit supply, and governments failing to sufficiently support the economy. The result is weak medium-term growth and poor equity market returns.
- There is considerable dispersion in performance across market cycles, between individual private funds but also between private fund strategies.
- Allocating to a specific strategy does not appear as rewarding when adjusted for risk and compared with a diversified portfolio of private assets.
- Strategic rebalancing and tilting a portfolio towards certain fund strategies and sectors can be a source of outperformance.
Within Ben’s report, “Maximizing Opportunities in the Private Market,” the baseline and bear forecasts are fully illustrated, providing extensive chart details and discussion analysis on the possible opportunities for strategic rebalancing by utilizing Ben’s Total Portfolio Management framework to analyze the risk/reward profile of private assets under the forecasted market environment.*
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