How Alternative are Private Markets?

Abstract

We estimate a parsimonious set of factor portfolios out of a comprehensive panel of private market funds. We test whether these private market factors are spanned by commonly used public equity factors, and whether they are priced in the cross-section of private market funds. Four main private market factors explain returns in the cross-section; one of them, dominated by large leveraged buyout funds, generated a signi cant positive premium. Together with the second factor dominated by venture capital funds, it improved an investor Sharpe ratio over the past thirty years. The benefits of investing in factors related to real assets and private debt funds have been smaller but increasing over time.

Keywords: Private Equity, Factor Investing, Portfolio Optimization

JEL Classification: G2, G11