| Hey Steve, while you are correct I think the confusion is related to what cmdkeen (and the article authors) mean by diversification. Whilst your comments are valid for public equity - this is simply one of several types of "asset classes" someone with billions of dollars has access too. Different, non-public asset classes can have properties distinct from bubble risks or liquidity. One of the key benefits of holding a variety of asset classes, particularly the more exotic ones - is that their performance can be uncorrelated with the performance of the stock and debt markets. Some examples of PE asset classes: - Venture Capital (very high risk, but over a long period of time is supposed to generate 20-30% rates of return) - Angel Investing (higher risk still, and you need many companies but also generating 20-30% returns with a big enough portfolio) - Commercial real estate (uncorrelated to global equity market performance - rather its connected to local market performance, pretty sure around 10% can be typical for offices) - Infrastructure projects (uncorrelated again, lower rates of return but you are locking in those returns for decades) There are tonnes of course, but when you start talking about personally investing such large sums of money - diversification means a lot more than just buying investments in the public markets (either bonds or stocks). |
