The Risk and Return of Private Equity Using Market Prices

29 Pages Posted: 17 Feb 2009 Last revised: 20 Feb 2009

Narasimhan Jegadeesh

Emory University - Department of Finance

Roman Kräussl

Luxembourg School of Finance; Hoover Institution, Stanford University

Joshua Matthew Pollet

University of Illinois at Urbana-Champaign - Department of Finance

Date Written: February 17, 2009

Abstract

Drawing on a unique and comprehensive data set that includes more than 700 listed private equity companies (LPEs), we analyze the historical risk profile of these investment vehicles from 1994 until 2008. We find that a return index of LPEs has similar risk properties compared to a return index of listed private equity fund of funds. Both of these indices indicate that the private equity (PE) asset class suffers from substantial exposure to stock market risk as well as other measures of macroeconomic activity. In contrast with previous studies, our analysis uses the market price as an objective measure of per share value, and therefore, it does not need to rely on the self-reported internal rate of return or net asset value imputed for assets that are inherently difficult to appraise to calculate the return for the private equity companies. In a cross-sectional analysis we also investigate the influence of organizational structure, size, experience, listing exchange, financing stage, geographic positioning, and industry focus on the fund discount (NAV/Price).

Keywords: Listed private equity, risk-return characteristics, funds of funds

JEL Classification: G12

Suggested Citation

Jegadeesh, Narasimhan and Kräussl, Roman and Pollet, Joshua Matthew, The Risk and Return of Private Equity Using Market Prices (February 17, 2009). Available at SSRN: https://ssrn.com/abstract=1344895 or http://dx.doi.org/10.2139/ssrn.1344895

Narasimhan Jegadeesh

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States

Roman Kraeussl (Contact Author)

Luxembourg School of Finance ( email )

4, rue Albert Borschette
Luxembourg, 1246
Luxembourg
+3524666445442 (Phone)

HOME PAGE: http://www.art-finance.com

Hoover Institution, Stanford University ( email )

Stanford, CA 94305
United States

Joshua Matthew Pollet

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 344-4311 (Phone)

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