Denominator Effect

Financial Mechanisms

In Short

The denominator effect is a portfolio management problem that occurs when a fall in public market values inflates the percentage allocation to private market assets. This can force investors to halt new commitments or sell assets to rebalance their portfolio allocations.

detailed Definition

A portfolio management issue where a sharp decline in the value of public market assets increases the relative weight of private market holdings in an investor’s portfolio. This can trigger forced halts to new commitments or secondaries sales, even if private assets are performing well. It became especially prominent during crises like 2008 and early 2020.

Act Locally. Invest Globally.

CapGain® is a registered trademark and operated by Arboris Capital Limited. Arboris Capital Limited (“Arboris”) is a company incorporated in the Dubai International Financial Centre (DIFC) under commercial license no. CL8411 and holding license no. F008066 from the Dubai Financial Services Authority (DFSA).

CapGain does not make investment recommendations and no communication, through this website or otherwise, should be construed as a recommendation of any security. Alternative investments in private placements are highly illiquid, speculative, and involve a high degree of risk. Past performance is not indicative of future results. Investors may not get back their money originally invested and those who cannot afford to lose their entire investment should not invest. Prior to investing, carefully consider the respective fund documentation for details about potential risks, charges, and expenses. The value of an investment may go down as well as up.

An investment in a private equity ("PE") fund or investment vehicle is not the same as a deposit with a banking institution. Investors receive illiquid and/or restricted membership interests that may be subject to holding period requirements and/or liquidity concerns. Investors who cannot hold an investment for the long term (at least 10 years) should not invest. In the most sensible investment strategy for PE investing, PE should only be part of your overall investment portfolio. The PE portion of your portfolio may include a balanced portfolio of different PE funds.

The CapGain platform may be accessed by certain international investors globally, including ‘Professional Investors’ (as defined by the DFSA) in the UAE, on a cross-border basis after appropriate checks and confirmation of their status. CapGain’s products are not suitable for retail investors in the UAE.

Act Locally. Invest Globally.

CapGain® is a registered trademark and operated by Arboris Capital Limited. Arboris Capital Limited (“Arboris”) is a company incorporated in the Dubai International Financial Centre (DIFC) under commercial license no. CL8411 and holding license no. F008066 from the Dubai Financial Services Authority (DFSA).

CapGain does not make investment recommendations and no communication, through this website or otherwise, should be construed as a recommendation of any security. Alternative investments in private placements are highly illiquid, speculative, and involve a high degree of risk. Past performance is not indicative of future results. Investors may not get back their money originally invested and those who cannot afford to lose their entire investment should not invest. Prior to investing, carefully consider the respective fund documentation for details about potential risks, charges, and expenses. The value of an investment may go down as well as up.

An investment in a private equity ("PE") fund or investment vehicle is not the same as a deposit with a banking institution. Investors receive illiquid and/or restricted membership interests that may be subject to holding period requirements and/or liquidity concerns. Investors who cannot hold an investment for the long term (at least 10 years) should not invest. In the most sensible investment strategy for PE investing, PE should only be part of your overall investment portfolio. The PE portion of your portfolio may include a balanced portfolio of different PE funds.

The CapGain platform may be accessed by certain international investors globally, including ‘Professional Investors’ (as defined by the DFSA) in the UAE, on a cross-border basis after appropriate checks and confirmation of their status. CapGain’s products are not suitable for retail investors in the UAE.

Act Locally.
Invest Globally.

CapGain® is a registered trademark and operated by Arboris Capital Limited. Arboris Capital Limited (“Arboris”) is a company incorporated in the Dubai International Financial Centre (DIFC) under commercial license no. CL8411 and holding license no. F008066 from the Dubai Financial Services Authority (DFSA).

CapGain does not make investment recommendations and no communication, through this website or otherwise, should be construed as a recommendation of any security. Alternative investments in private placements are highly illiquid, speculative, and involve a high degree of risk. Past performance is not indicative of future results. Investors may not get back their money originally invested and those who cannot afford to lose their entire investment should not invest. Prior to investing, carefully consider the respective fund documentation for details about potential risks, charges, and expenses. The value of an investment may go down as well as up.

An investment in a private equity ("PE") fund or investment vehicle is not the same as a deposit with a banking institution. Investors receive illiquid and/or restricted membership interests that may be subject to holding period requirements and/or liquidity concerns. Investors who cannot hold an investment for the long term (at least 10 years) should not invest. In the most sensible investment strategy for PE investing, PE should only be part of your overall investment portfolio. The PE portion of your portfolio may include a balanced portfolio of different PE funds.

The CapGain platform may be accessed by certain international investors globally, including ‘Professional Investors’ (as defined by the DFSA) in the UAE, on a cross-border basis after appropriate checks and confirmation of their status. CapGain’s products are not suitable for retail investors in the UAE.