The problem for me is that whole purpose of the Endowment Total Returns approach is provide better risk diversification and more efficient use of the risk budget. This does not occur if the volatility numbers are massively understated by infrequent appraisal or stale pricing hence the term 'volatility laundering'. This artificially enhances Sharpe ratios and lulls the board into a false sense of security about the risks they are taking. If you plug the available aggregate returns given for PE into an optimiser along with Equities and Bonds you get an 'optimal' allocation of around 40%. After adjusting for appraisal risk however, the correct number is closer to 20%. That is a massive over-allocation to something that has significant Equity Beta like characteristics and completely at odds with the objective of reducing Beta risk. It is a very Horatio Nelson blind eye to the telescope approach that one cant help but think is deliberate. If boards and allocators really are this dumb then a different set of questions need to be asked.

https://www.academia.edu/41838881/Impact_of_Autocorrelation_on_Expected…