Understanding and Evaluating Buyout Portfolio Risks

Abstract:     
The purpose of the paper will be to understand and evaluate portfolio level risk from the perspective of an investor (LP) whose portfolio contains one or more buyout funds. For the purposes of this paper, risk will be defined as the increased probability of a loss of capital that would result in a return that is less than the median LBO return for a given year. It is the intent of the paper to acknowledge the limits of statistical analysis and focus on a logical measure of relative risk by creating a “risk spectrum” for each of what I believe to be the fundamental risk drivers within a fund. Further, I will try to establish a framework for monitoring risk on an ongoing basis, as it will likely change during the fund’s life.

Number of Pages in PDF File: 8

Keywords: Private Equity, Buyout, Risk, alternative investments

working papers series