Estimating Private Equity Returns from Limited Partner Cash Flows

65 Pages Posted: 2 Jul 2014 Last revised: 18 Feb 2017

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: April 5, 2016

Abstract

We introduce a methodology to estimate the historical time-series of returns to investment in private equity funds. 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 private equity returns that differs according to fund type. The time-series estimates allow us to directly test theories about private equity cyclicality, and we find evidence that capital market segmentation helps to determine private equity returns.

Suggested Citation

Ang, Andrew and Chen, Bingxu and Goetzmann, William N. and Phalippou, Ludovic, Estimating Private Equity Returns from Limited Partner Cash Flows (April 5, 2016). Netspar Discussion Paper No. 06/2014-021; Saïd Business School WP 2014-8. Available at SSRN: https://ssrn.com/abstract=2460789

Andrew Ang (Contact Author)

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

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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