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Estimating Private Equity Returns from Limited Partner Cash Flows

64 Pages Posted: 18 Nov 2013 Last revised: 22 Jun 2014

Andrew Ang

BlackRock, Inc

Bingxu Chen

Columbia Business School - Finance and Economics

William N. Goetzmann

Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Ludovic Phalippou

University of Oxford - Said Business School; University of Oxford - Oxford-Man Institute of Quantitative Finance

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Date Written: June 11, 2014

Abstract

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.

Suggested Citation

Ang, Andrew and Chen, Bingxu and Goetzmann, William N. and Phalippou, Ludovic, Estimating Private Equity Returns from Limited Partner Cash Flows (June 11, 2014). Columbia Business School Research Paper No. 13-83. Available at SSRN: https://ssrn.com/abstract=2356553 or http://dx.doi.org/10.2139/ssrn.2356553

Andrew Ang

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Bingxu Chen

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

William N. Goetzmann

Yale School of Management - International Center for Finance ( email )

165 Whitney Ave.
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5950 (Phone)
203-436-9252 (Fax)

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National Bureau of Economic Research (NBER)

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Ludovic Phalippou (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

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