Date of Publication

3-2025

Document Type

Master's Thesis

Degree Name

Master of Science in Financial Engineering

Subject Categories

Finance and Financial Management

College

Ramon V. Del Rosario College of Business

Department/Unit

Financial Management Department

Thesis Advisor

Robert Rol Richard

Raymond B. Ramos

Defense Panel Chair

Tomas S. Tiu

Defense Panel Member

Edwin B. Valeroso

Joseph James F. Lago

Abstract (English)

This study investigates the design and performance analysis of private equity investments within the context of a retail investment portfolio in the Philippines. The study aims to evaluate the integration of private equity with traditional equity and fixed-income securities, using a Hierarchical Risk Parity (HRP) approach for portfolio optimization. The research addresses three primary questions: (1) How does the HRP portfolio perform compared to portfolios constructed using traditional optimization techniques and techniques that utilize artificial neural network generated estimators? (2) What is the effect of private equity when integrated with traditional equity and fixed-income securities in a portfolio? (3) What are the optimal asset weightings between traditional equities, fixed income, and private equity in a retail investment portfolio? To meet these objectives, the study utilizes advanced methods for portfolio construction, including hierarchical risk parity, tree clustering, quasi-diagonalization, and recursive bisection. These techniques focus on reducing risk concentration while enhancing diversification, providing a comparative analysis of portfolio performance relative to traditional optimization methods and techniques that utilize artificial neural network generated estimators. The study also includes tests of shifts across market regimes using the Markov Regime Switching Model. The empirical results will contribute to a greater understanding of portfolio optimization strategies, particularly in the context of Philippine retail investors, and assess the potential benefits of incorporating private equity into traditional asset mixes. This research presents a comprehensive framework for portfolio design and investment strategy, addressing the growing need for diversified investment opportunities in the Philippine retail market.

Keywords: Portfolio optimization, Machine learning, Hierarchical risk parity, Bonds, Stocks, private equity, Artificial neural networks, Markov Regime Switching Model

Abstract Format

html

Abstract (Filipino)

None

Abstract Format

html

Language

English

Format

Electronic

Keywords

Portfolio management

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