This paper develops a reinvestment strategy for private equity which aims to keep its portfolio weight equal to a desired strategic allocation, while taking into account the illiquid nature of private equity. Historical simulations (1980-2005) show that our dynamic strategy is capable of maintaining a stable investment level that is close to the target. This does not only hold for unrestricted portfolios, but also for investments limited to buyout or venture capital, a specific region, or management experience. This finding is of great importance for investors, because private equity funds have a finite lifetime and uncertain cash flows.

overcommitment, private equity funds, recommitment strategy, strategic asset allocation
Asset Pricing (jel G12), Corporate Finance and Governance (jel G3), Business Administration and Business Economics; Marketing; Accounting (jel M)
Erasmus Research Institute of Management
hdl.handle.net/1765/10892
ERIM Report Series Research in Management
ERIM report series research in management Erasmus Research Institute of Management
Erasmus Research Institute of Management

de Zwart, G.J, Frieser, B, & van Dijk, D.J.C. (2007). A Recommitment Strategy for Long Term Private Equity Fund Investors (No. ERS-2007-097-F&A). ERIM report series research in management Erasmus Research Institute of Management. Erasmus Research Institute of Management. Retrieved from http://hdl.handle.net/1765/10892