Estimating Private Equity Returns from Limited Partner Cash Flows
Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)
Columbia Business School - Finance and Economics
William N. Goetzmann
Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)
University of Oxford - Said Business School; University of Oxford - Oxford-Man Institute of Quantitative Finance
June 11, 2014
Columbia Business School Research Paper No. 13-83
We introduce a methodology to estimate the historical time series of returns to investment in private equity. The approach requires only an unbalanced panel of cash contributions and distributions accruing to limited partners, and is robust to sparse data. We decompose private equity returns into a component due to traded factors and a time-varying private equity premium. We find strong cyclicality in the premium component that differs according to fund type. The time-series estimates allow us to directly test theories about private equity cyclicality, and we find evidence in favor of the Kaplan and Strömberg (2009) hypothesis that capital market segmentation helps to determine the private equity premium.
Number of Pages in PDF File: 64
Date posted: November 18, 2013 ; Last revised: June 22, 2014
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