Risk Management and asset allocation Research Proposal

Risk Management and asset allocation - Research Proposal Example According to The New York Times (2011), â€Å"Asset allocation† describes dividing one's investments among the various types of asset classes. This is like saying putting one’s eggs in different baskets. Pietersz (2005) observes that asset allocation â€Å"helps ensure that investments are spread out across a wide range of markets and securities.† They do so because asset allocation does not have a one-off surety for success – it may either succeed or backfire, depending on who is handling the asset. Grange (2010) relates exposure management to the nature of product being invested in. He recognizes two major products, which are those â€Å"made up of those products that start with a balance equal to their limit and where, over time, the balance decreases away from the limit† and those which â€Å"start with a zero balance and some higher limit and where, over time, the balance increases towards the limit†. Generally, in the first instance, ex posure created is classified as productive whereas in the second instance, all exposure created is classified as unproductive. ... some who believe that much of a success in asset allocation should be looked at in terms of who handles which venture rather than the type of equity or portfolio it is. Such an argument gives operators of private equity some hope of competition in asset allocation. 1.2 Hypothesis The type of equity; be is private or public does not have significant influence on the rate of success in asset allocation. Private equity can perform as creditably well as a public equity. Public equity is not a guaranteed choice for asset allocation. Success in asset allocation is influenced by several managerial factors including exposure management. 1.3 Research Questions 1. Which factors inform the choice of a particular venture for asset allocation? 2. Why has private equity investment become so popular? 3. What is the most favorable private equity share in a general asset allocation? 4. To what extent does private equity expose investors? 5. How can a private equity exposure be derived? 6. What are th e risks in overrunning a specific allocation and how can it be reduced? 7. Which model can be used to appraise the future of asset allocated in private equity? 1.4 Objectives 1.4.1 Main Objective To find the relationship between private equity, their exposure management practice and the degree of success in investing in private equity as an option for asset allocation 1.4.2 Specific Objectives 1. Identify the basis upon which private equities operate. 2. Explore the exposure management practices of private equities. 3. Find out from investors, why they choose and prefer private equities for asset allocation. 4. Find authentication or otherwise to claims that asset allocation in private equity is risky due to poor exposure management. 5. Prescribe models that can best be used to appraise