Private Equity Net Asset Values and Future Cash Flows

Forthcoming The Accounting Review

46 Pages Posted: 29 Jul 2015 Last revised: 4 Apr 2019

See all articles by Tim Jenkinson

Tim Jenkinson

University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School

Brian Rountree

Rice University - Jesse H. Jones Graduate School of Business

Kazbi Soonawalla

University of Oxford - Said Business School

Date Written: March 26, 2019

Abstract

This paper analyzes whether fair value estimates of fund net asset values (NAVs) produced by private equity managers are accurate and unbiased predictors of future discounted cash flows (DCF). We exploit the fact that private equity funds have finite lives to compare reported NAVs to DCFs based on realized cash flows for 384 venture capital (VC) funds and 195 buyout funds spanning 1988-2016. Findings reveal that Buyout funds' NAVs display little systematic bias, but VC funds' NAVs are relatively aggressively biased compared to Buyout funds, especially since 2000. Accuracy is worse in the first half of the sample period even though NAV estimates generally are more conservative. Overall, the results reveal significant differences in the association between NAVs and DCFs for Buyout versus VC funds, which is particularly important for private equity fund investors in their consideration of the relevance and reliability of NAV estimates provided by fund managers.

Keywords: Private equity, asset valuation, fair value

JEL Classification: G00, G24, G30, M40

Suggested Citation

Jenkinson, Tim and Landsman, Wayne R. and Rountree, Brian Robert and Soonawalla, Kazbi, Private Equity Net Asset Values and Future Cash Flows (March 26, 2019). Forthcoming The Accounting Review. Available at SSRN: https://ssrn.com/abstract=2636985 or http://dx.doi.org/10.2139/ssrn.2636985

Tim Jenkinson

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
United Kingdom
+44 1865 288916 (Phone)
+44 1865 288831 (Fax)

HOME PAGE: http://www.sbs.oxford.edu/timjenkinson

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Wayne R. Landsman (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3221 (Phone)
919-962-4727 (Fax)

Brian Robert Rountree

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Kazbi Soonawalla

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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