TY - JOUR T1 - Macro Factor Model: Application to Liquid Private Portfolios JF - The Journal of Portfolio Management DO - 10.3905/jpm.2021.1.231 SP - jpm.2021.1.231 AU - Scott Gladstone AU - Ananth Madhavan AU - Anita Rana AU - Andrew Ang Y1 - 2021/03/05 UR - https://pm-research.com/content/early/2021/03/05/jpm.2021.1.231.abstract N2 - We show how macro factors—economic growth, inflation, real rates, credit, emerging markets, and liquidity—can be used to model private market returns. The framework helps to identify the different components of private returns: those that are common to public market returns, return components common across private markets, specific return components to a particular illiquid market, and leverage. We apply the framework with factor models of private real estate, infrastructure, and private equity, which can be implemented in liquid instruments. Having modeled both public and private market assets with the same risk factors, we then use the framework to create an optimal combined public–private multi-asset portfolio.TOPICS: Private equity, real estate, other real assets, portfolio constructionKey Findings▪ Macro factors such as growth and inflation can be used to model private market returns.▪ We show how factor models of private real estate, infrastructure, and private equity can be implemented in a liquid private portfolio and ultimately in an optimal combined public–private multi-asset portfolio.▪ Liquid private portfolios are not a replication solution, but rather an all-in alternatives solution in which we can use exchange-traded funds as a liquid interim vehicle. ER -