Private capital funds raise assets through one or more ‘closings’, whereby investors commit capital to be drawn down in the future, mainly at the manager’s discretion as they find appropriate investments. While the majority of capital raised is from external investors, investment managers and their closely affiliated entities also provide commitments during the closings.
Read MoreThe contributions of asset selection and incremental leverage to buyout investment performance are more important than typically assumed or estimated to be. Buyout funds select small firms with distinct value characteristics. Public equities with these characteristics have high risk-adjusted returns relative to common factors…
Read MoreIn this paper, the authors study the impact of including private investment funds into diversified portfolios that otherwise hold only public stocks and bonds.
Read MoreClosed-end funds use capital that they call from their LPs to finance their investments. However, these capital calls are not their only source of financing. Increasingly, funds borrow capital in order to make their investments. In this paper, we will provide some background on why these trends matter to investors and then document fund debt over time and by asset class.
Read MoreThis paper examines leverage and debt financing in the private equity buyout market. The authors provide an overview of how debt is utilized in buyout investment structures and a review of existing theoretical and empirical academic literature.
Read MoreThis paper evaluates the pros and cons of including private equity fund investments in defined contribution plans. Potential benefits include higher returns and improved diversification as well as a relatively safe method for accessing investments previously only available to institutions and the very wealthy.
Read MoreThere are many methods for conducting performance attribution with portfolios containing only liquid assets. Efforts to conduct similar types of analyses for portfolios of private equity funds (and other illiquid investments) have been thwarted by a lack of periodic asset return data and a clear understanding of what constitutes appropriate market benchmarks.
Read MoreInstitutional investors often select private equity real estate (PERE) funds based on the belief that some of the managers possess skill. In this paper, we study skill of PERE general partners (GPs) from two perspectives: performance persistence and limited partner (LP) reinvestment. The researchers first risk-adjust fund returns by controlling for fund characteristics and obtain abnormal returns that are driven by managerial skill.
Read MoreThis paper provides the first large-sample analysis of buyout and venture capital fund values over their lifetimes. Specifically, the authors examine interim fund investment multiples (TVPIs), internal rates of return (IRRs), and direct-alphas based on the current reported net asset values (NAVs) at each quarter of a fund’s life.
Read MoreValuing illiquid assets is hard but often necessary to provide critical input for investment decisions. Private equity (PE) investments are a prime example of such a setting whereby various stakeholders have to rely on infrequently and strategically self-reported Net Asset Values (NAVs) by fund managers while the secondary markets for most fund stakes are relatively undeveloped and likely reflect behaviors of unrepresentative investors.
Read MoreUsing a new Burgiss dataset of holding-level transactions, we study how funds re-sponded to crises.
Read MorePublic investors, such as public pension funds and sovereign wealth funds, perform worse than private investors, despite being exposed to underlying deals with similar characteristics. By selecting underperforming funds and increasing their commitments, public investors have created an implicit subsidy of over $2 billion per year to infrastructure as an asset class.
Read MoreThe paper describes preliminary findings on sample characteristics and offers a high-level view on aspects of performance in hopes of inspiring additional research.
Read MoreWe propose a new valuation method for private equity investments. First, we construct a cash-flow replicating portfolio for the private investment, using cash-flows on various listed equity and fixed income instruments.
Read MoreWe examine the impact of including private investment funds into diversified (e.g., balanced and target date fund) portfolios that otherwise hold only public stocks and bonds.
Read MoreThis paper studies the emergence of debt financing by private equity funds. Using confidential (Burgiss) data on U.S. buyout funds, the authors document the increasing use of subscription lines of credit (SLCs) as an additional source of capital…
Read MoreIn this paper we advance the discussion and describe a recommended approach for constructing a composite private capital benchmark, emphasizing the importance of pooled measures. In it, we also propose a methodology for computing portfolio ranks, which allows the generation of a report containing both pooled and rank measures at all levels of a reporting hierarchy.
In a recent paper, “Demystifying Illiquid Assets – Expected Returns for Private Equity,” Ilmanen, Chandra and McQuinn (of AQR) give a perspective on the past, present, and expected future performance of private equity…
Read MorePrivate equity performance, both for buyouts and venture capital, has been highly cyclical: periods of high fundraising have been followed by periods of low absolute performance…
Read MoreDetermining whether a portfolio has under- or over-performed requires a benchmark. Private capital portfolios are no different; however, in contrast to listed equities, for these there is no consensus on how to build such a benchmark from sub-components (for instance, vintages or private asset-classes).
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