Abstract

http://ssrn.com/abstract=2352129
 
 

Citations (3)



 


 



Valuing Private Equity


Morten Sorensen


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

Neng Wang


Columbia Business School - Finance and Economics

Jinqiang Yang


Shanghai University of Finance and Economics

November 2013

NBER Working Paper No. w19612

Abstract:     
We investigate whether the performance of Private Equity (PE) investments is sufficient to compensate investors (LPs) for risk, long-term illiquidity, management and incentive fees charged by the general partner (GP). We analyze the LP's portfolio-choice problem and find that management fees, carried interest and illiquidity are costly, and GPs must generate substantial alpha to compensate LPs for bearing these costs. Debt is cheap and reduces these costs, potentially explaining the high leverage of buyout transactions. Conventional interpretations of PE performance measures appear optimistic. On average, LPs may just break even, net of management fees, carry, risk, and costs of illiquidity.

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Number of Pages in PDF File: 64

working papers series


Date posted: November 9, 2013  

Suggested Citation

Sorensen, Morten and Wang, Neng and Yang, Jinqiang, Valuing Private Equity (November 2013). NBER Working Paper No. w19612. Available at SSRN: http://ssrn.com/abstract=2352129

Contact Information

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

Jinqiang Yang
Shanghai University of Finance and Economics ( email )
777 Guoding Road
Shanghai, Shanghai 200433
China
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