The Return to Pension Funds' Private Equity Investments: New Evidence on the Private Equity Premium Puzzle

45 Pages Posted: 25 Feb 2008  

Kasper Meisner Nielsen

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Abstract

This paper provides new evidence on the private equity premium puzzle suggested by Moskowitz and Vissing-Jørgensen (2002); Even professional investors like pension funds seem to get a poor risk-return tradeoff from investing directly in private equity. We examine whether high risk tolerance, pecuniary and nonpecuniary benefits, overoptimism or political preferences can explain why pension funds despite this invest in private equity. The evidence suggests that mispricing due to overoptimism and subsequent low capital gains can explain the gap in returns to private equity.

Keywords: private equity, equity premium, pension funds

JEL Classification: G11, G12, G23

Suggested Citation

Nielsen, Kasper Meisner, The Return to Pension Funds' Private Equity Investments: New Evidence on the Private Equity Premium Puzzle. Available at SSRN: https://ssrn.com/abstract=1095289 or http://dx.doi.org/10.2139/ssrn.1095289

Kasper Meisner Nielsen (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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