Deon Diogenes. jdiogenes@partnersproperty.com
The private equity, hedge funds, and real estate are alternative assets and are more illiquid than publicly traded stocks and bonds. Illiquidity, which creates a performance reporting challenge, is associated with infrequent trading and low turnover, which raises questions regarding the quality of information or price discovery. Reported illiquid assets returns are not returns as we think of them with stocks. Illiquid asset returns tend to overstate expected returns and understate risk due to survival bias, infrequent sampling, and selection bias. Hence, investors should be cautious. Reported illiquid asset returns are not true returns. We need not throw up our hands in abject despair; there are quantitative methods that can help correct these biases, especially regarding property returns, which are notoriously smoothed or serially correlated.
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