Backtesting Private Asset Models

Jun 19, 2020

MSCI’s Barra Private Real Estate Model (PRE2), Barra Private Equity Model (PEQ2) and MSCI Private Infrastructure Model (PIN1) have advanced the understanding of investments in global private assets. Private assets were once considered low-risk investments uncorrelated with most public assets due to the smoothness in private asset valuations. With innovative statistical methodology, the MSCI private asset models reveal the intrinsic risk in private assets, show large exposures to systematic risk factors driving public assets and provide timely risk forecasts for illiquid investments on a like-to-like basis with all other asset classes. The models reveal both large risk in private assets and large opportunities for global diversification. In this paper, we backtest the risk forecasts from the PRE2, PEQ2 and PIN1 models.