Saving Private Buying: Replicating Private Equity Returns Under Different Economic Regimes

Abstract

The returns provided by investing in different types of private equity can be replicated using an optimized mixture of exchange-traded funds, with adjustments being made to mitigate the risk and lower the leverage associated with the deal. The result is a model that serves as both an adequate forecasting tool for future private equity returns and as a hedging strategy for risk-averse investors. While different strategies may be employed, the one that is the most optimal makes use of a regime-based economic model, adjusting the weights on each exchange-traded fund depending on whether the economy is in a growth regime or in a crash regime.