ASSET ALLOCATION

Modern portfolio theory is the basis for an increased demand for a diversified mix of investments to minimize risk for a given level of expected return. Private equity is one class of assets that can help investment managers achieve diversification and portfolio optimization. The diagram at right is an example of how the "efficient frontier," i.e., the curve that describes an optimal balance between risk and return for a given portfolio of assets, shifts advantageously with the addition of private equity investments. Note, however, that this diagram is intended to reflect portfolio optimization in modern portfolio theory and does not imply an assurance that private equity will provide an increase in returns.