Returns and Risks to Private Equity
64 Pages Posted: 9 Mar 2011 Last revised: 25 Nov 2013
Date Written: November 24, 2013
We assess returns and risks to private equity investors from 35 countries for the time interval of 1996-2008. We find that returns to private equity (measured as return on book equity (ROE)) are significantly higher than ROEs to publicly traded equity. Using customary measures to adjust for risk, the spread between private and public equity returns is sufficiently high to justify the idiosyncratic risk borne by undiversified private equity investors. Despite their apparently high undiversified portfolio risk, investors in non-publicly traded firms appear to allocate their capital efficiently.
Keywords: Private equity
JEL Classification: G10, G15, G30
Suggested Citation: Suggested Citation