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Returns and Risks to Private Equity
Mara Faccio
Purdue University - Krannert School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Maria-Teresa Marchica
University of Manchester - Manchester Business School
John J. McConnell
Purdue University
Roberto Mura
University of Manchester - Manchester Business School
November 11, 2011
Abstract:
We assess returns and risks to private equity investors from 35 countries for the time interval of 1996-2008. We find that returns to private equity (measured as return on book equity (ROE)) are significantly higher than ROEs to publicly traded equity. Using customary measures to adjust for risk, the spread between private and public equity returns is sufficiently high to justify the idiosyncratic risk borne by undiversified private equity investors. Despite their apparently high undiversified portfolio risk, investors in non-publicly traded firms appear to allocate their capital efficiently.
Number of Pages in PDF File: 59
Keywords: Private equity
JEL Classification: G10, G15, G30
working papers series
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Date posted: March 9, 2011
; Last revised: March 17, 2012
Suggested CitationFaccio, Mara, Marchica, Maria-Teresa, McConnell, John J. and Mura, Roberto, Returns and Risks to Private Equity (November 11, 2011). Available at SSRN: http://ssrn.com/abstract=1781070 or http://dx.doi.org/10.2139/ssrn.1781070
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