Asset allocation programs in private equity usually differentiate geographical areas based on their past popularity. By looking at the historical amounts of capital collected by local funds, investors usually identify three regions: the US (or at times North America), Western Europe (sometimes divided into sub-regions such as Benelux, DACH2 or Scandinavia) and “the rest of the world”.

This rather naive approach of the private equity world is self-reinforcing. As data is scarce, investors have a limited incentive to design more granular geographical allocations. This in turn limits the appetite of investors for PE funds active in the US and Western Europe. As the relative weight of the “rest of the world” remains relatively low in asset allocations, fewer funds get financed and therefore these geographical areas remain less documented. As a result, the naive and simplified geographical allocation highlighted above is further strengthened.

Figure 1 – Risk-return (TVPI) profile of Eastern and Western European funds

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