The Liquidity Cost of Private Equity Investments: Evidence from Secondary Market Transactions
Charles A. Dice Center Working Paper No. 2016-11
52 Pages Posted: 2 Jul 2016 Last revised: 26 Aug 2017
Date Written: August 24, 2017
This paper uses proprietary data from a leading intermediary to understand the magnitude and determinants of transaction costs in the secondary market for private equity stakes. Most transactions occur at a discount to net asset value. Buyers average an annualized public market equivalent of 1.023 compared to 0.976 for sellers, implying that buyers outperform sellers by a market-adjusted five percentage points annually. Both the cross-sectional pattern of transaction costs and the identity of sellers and buyers suggest that the market can be characterized as one in which relatively flexible buyers earn returns by supplying liquidity to investors wishing to exit.
Keywords: Private Equity, Secondary Market for Private Equity Funds, Liquidity, Transactions Costs
JEL Classification: G11, G23, G24
Suggested Citation: Suggested Citation