Private Equity Performance and Liquidity Risk

65 Pages Posted: 5 Aug 2010 Last revised: 13 Sep 2012

See all articles by Francesco A. Franzoni

Francesco A. Franzoni

USI Lugano; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

Eric Nowak

Swiss Finance Institute; University of Lugano

Ludovic Phalippou

University of Oxford - Said Business School

Multiple version iconThere are 2 versions of this paper

Date Written: May 12, 2011


Private equity has traditionally been thought to provide diversification benefits However, these benefits may be lower than anticipated. We find that private equity suffers from significant exposure to the same liquidity risk factor as public equity and other alternative asset classes. The unconditional liquidity risk premium is close to 3% annually and, in a four-factor model, the inclusion of this liquidity risk premium reduces alpha to zero. In addition, we provide evidence that the link between private equity returns and overall market liquidity occurs via a funding liquidity channel.

Netspar Discussion Paper No. 06/2010-024 (revised version May 2011)

Keywords: private equity, liquidity risk, cost of capital

JEL Classification: C51, G12, G23

Suggested Citation

Franzoni, Francesco A. and Nowak, Eric and Phalippou, Ludovic, Private Equity Performance and Liquidity Risk (May 12, 2011). Netspar Discussion Paper No. 06/2010-024; Journal of Finance, Forthcoming. Available at SSRN: or

Francesco A. Franzoni

USI Lugano ( email )

Via G. Buffi 13
Lugano, 6904

Swiss Finance Institute


Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Eric Nowak (Contact Author)

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

University of Lugano ( email )

Via Buffi 13
CH-6900 Lugano
+41-91-9124-637 (secr. -712) (Phone)
+41-91-9124-647 (Fax)

Ludovic Phalippou

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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