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Whitepapers — March 2, 2023

Understanding private asset risk through the lens of Axioma Equity Factor Risk Models

by William Morokoff, PhD

As part of a partnership between CEPRES and Qontigo, a new suite of factor risk models that provide broad coverage of the private asset fund space is now available in Axioma Risk, Qontigo’s enterprise risk management platform. The models systematically decompose the risk of private asset fund returns into public market factor risk exposures, as well as private asset latent factors, providing risk analysis for portfolios composed of both public and private assets.

Understanding the connection between the risks of the public and private markets has become more important than ever. Modeling the risk of private assets in a multi-asset class portfolio is notoriously difficult due to the lack of observable, market-traded returns from which volatilities and correlations with other risk factors can be estimated. However, for the CEPRES-Qontigo models, we work with verified fund cash flow data corresponding to fund investments and distributions.

This paper provides an in-depth description of the model calibration and validation approach.

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