Resource title

Performance of private equity funds: another puzzle? (RV of 2003/93/SM/ACGRD 3)

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Using a novel and comprehensive database on the performance of US and EU private equity (PE) funds and their underlying investments, the authors find that the performance of PE funds is below that of public stock-markets. Given the illiquidity of such investments and the risk that they involve, such a result is puzzling. They document how fund performance co-varies positively with both business cycles and stock-market cycles, an unattractive property. In particular, they find that PE funds are exposed to substantial left tail risk and returns are sensitive to the valuation levels that prevail on public stock-markets when investments are exited. Although they cannot compute a satisfactory equivalent of the Jensen's alpha in their context, their analysis indicates that private equity funds underperform under conservative assumptions about the risk they carry. Such performance is perplexing and they cannot reject the possibility of mispricing by sophisticated institutional investors.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2004/2004-82.pdf

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Copyright INSEAD. All rights reserved