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The high risks that such loss rates imply are both the cause of the high issuer cost and the flip side of high average returns on a portfolio of venture capital equities.
In a survey, large long-term institutional private equity investors reported that they generally expect a long-run rate of return on private equities of at least 15 percent, as compared with 11 percent to 12 percent for public equities, but some report that they expect the standard deviation of returns to be about twice as high--32 percent versus 16 percent.
Any return (or losses) that banking organizations capture per dollar of portfolio equities held are multiplied significantly relative to their own investment in this part of their business--both absolutely and relative to independent firms.
That practice seemed consistent with the evidence we reviewed, particularly given the current valuations placed on equities relative to historical norms.
However, commenters have argued that there would be considerably less difficulty with the proposed regulatory capital treatment for equities if the authorities permitted a regulatory capital treatment for the rest of a banking organization's assets that was consistent with the "real" or economic risk on those assets.
It is difficult to estimate the capital "savings" made by these institutions from capital arbitrage and compare it to the potential "cost" of higher regulatory capital on equities.
These firms are outstanding businesses in their own right, and they also provide significant additional diversity to AMG's EBITDA by including a range of products that are invested in Canadian equities and bonds, in U.