Private Company Valuations by Mutual Funds
Review of Finance, Forthcoming
64 Pages Posted: 8 Nov 2017 Last revised: 22 Apr 2022
Date Written: April 20, 2022
Mutual fund families set and report values of their private startup holdings, which affect the fund net asset value (NAV) at which investors buy/sell fund shares. We test three hypotheses related to the valuation practice: (i) information cost/access, (ii) litigation risk, and (iii) strategic NAV management. Consistent with (i), families with larger PE holdings and/or stronger information access update valuations more frequently in the absence of public information releases, their updates co-move less with other families, and their fund returns jump less at follow-on financings. We find no support for hypotheses (ii) or (iii). We also find that high-PE-exposure funds are subject to greater financial fragility.
Keywords: Mutual funds, Venture capital, Private valuation, Stale prices, Financial fragility
JEL Classification: G23, G24, G32, M13
Suggested Citation: Suggested Citation