Abstract

http://ssrn.com/abstract=2119849
 


 



Risks, Returns, and Optimal Holdings of Private Equity: A Survey of Existing Approaches


Andrew Ang


Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Morten Sorensen


Columbia Business School; National Bureau of Economic Research (NBER); Swedish Institute for Financial Research (SIFR)

July 30, 2012


Abstract:     
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: 32

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Date posted: July 30, 2012  

Suggested Citation

Ang, Andrew and Sorensen, Morten, Risks, Returns, and Optimal Holdings of Private Equity: A Survey of Existing Approaches (July 30, 2012). Available at SSRN: http://ssrn.com/abstract=2119849 or http://dx.doi.org/10.2139/ssrn.2119849

Contact Information

Andrew Ang
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Morten Sorensen (Contact Author)
Columbia Business School ( email )
3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Swedish Institute for Financial Research (SIFR)
Drottninggatan 89
SE-113 59 Stockholm, SE-113 60
Sweden
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