Risks, Returns, and Optimal Holdings of Private Equity: A Survey of Existing Approaches
Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)
Columbia Business School; National Bureau of Economic Research (NBER); Swedish Institute for Financial Research (SIFR)
July 30, 2012
We survey the academic literature that examines the risks and returns of private equity (PE) investments, optimal PE allocation, and compensation contracts for PE firms. The irregular nature and limited data of PE investments complicate the estimation and interpretation of standard risk and return measures. These complications have led to substantial disparity in performance estimates reported across studies. Moreover, studies suggest that the illiquidity and transaction costs inherent in PE investments have substantial implications for optimal holdings of these assets. While incentive fees in PE address moral hazard and information agency problems, total fees in PE investments are large and incentive fees account for a minority of total compensation.
Number of Pages in PDF File: 32working papers series
Date posted: July 30, 2012
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