The Alpha and Beta of Private Equity Investments

63 Pages Posted: 16 Jan 2015 Last revised: 4 Nov 2020

See all articles by Axel Buchner

Axel Buchner

University of Passau; CEPRES - Center of Private Equity Research

Date Written: November 2, 2020

Abstract

This paper introduces a novel methodology to estimate abnormal performance and systematic risk of private equity from observable cash flows. The methodology is validated using Monte-Carlo simulations and is applied to a unique sample of 10,798 portfolio company investments by private equity funds. The results show that both venture capital and buyout investments have substantial loadings on the market factor and earn statistically significant positive abnormal returns before fees. The paper also provides the first comprehensive analysis of the differences in systematic risk and abnormal returns across time periods, exit routes, regions, industries, and across companies in different development stages.

Keywords: private equity, venture capital, abnormal return, systematic risk

JEL Classification: C51, G12, G23, G24

Suggested Citation

Buchner, Axel, The Alpha and Beta of Private Equity Investments (November 2, 2020). Available at SSRN: https://ssrn.com/abstract=2549705 or http://dx.doi.org/10.2139/ssrn.2549705

Axel Buchner (Contact Author)

University of Passau ( email )

Innstra├če 27
Passau, 94030
Germany

CEPRES - Center of Private Equity Research ( email )

Max-Joseph-Strasse 7
Munich, 80333
Germany

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