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The Journal of Portfolio Management

The Journal of Portfolio Management

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Primary Article

Venture Capital and its Role in Strategic Asset Allocation

Peng chen, Gary T. Baierl and Paul D. Kaplan
The Journal of Portfolio Management Winter 2002, 28 (2) 83-89; DOI: https://doi.org/10.3905/jpm.2002.319835
Peng chen
Vice president and director of research at Ibbotson Associates in Chicago (IL 60601). .
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  • For correspondence: pchen@ibbotson.com
Gary T. Baierl
The head of quantitative research at Causeway Capital Management in Los Angeles (CA 90025).
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Paul D. Kaplan
Director of research at Morningstar in Chicago (IL 60606).
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Abstract

With record amounts of money flowing into venture capital investment in recent years, it has become an important asset class in many long–term strategic portfolios. The authors explain the long–term risk–return characteristics of venture capital investment and its role in a long–term strategic asset allocation. While there are limited market performance data on venture capital, they find that from 1960 through 1999, venture capital has had an annual arithmetic average return of 45% with a standard deviation of 115.6%. The geometric average return (compounded average) is estimated to be about 13%. The correlation coefficient between venture capital and public stocks is estimated to be 0.04%. Because of its relatively low correlation with stocks, an allocation to venture capital of 2% to 9% is warranted for an aggressive portfolio (i.e., all–equity).

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The Journal of Portfolio Management
Vol. 28, Issue 2
Winter 2002
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Venture Capital and its Role in Strategic Asset Allocation
Peng chen, Gary T. Baierl, Paul D. Kaplan
The Journal of Portfolio Management Jan 2002, 28 (2) 83-89; DOI: 10.3905/jpm.2002.319835

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Venture Capital and its Role in Strategic Asset Allocation
Peng chen, Gary T. Baierl, Paul D. Kaplan
The Journal of Portfolio Management Jan 2002, 28 (2) 83-89; DOI: 10.3905/jpm.2002.319835
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