Private Equity Indices Based on Secondary Market Transactions

Fisher College of Business Working Paper No. 2018-03-021

Charles A. Dice Center Working Paper No. 2018-21

57 Pages Posted: 25 Oct 2018

See all articles by Brian H. Boyer

Brian H. Boyer

Brigham Young University - J. Willard and Alice S. Marriott School of Management

Taylor Nadauld

Brigham Young University

Keith Vorkink

Brigham Young University - J. Willard and Alice S. Marriott School of Management

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: October 24, 2018

Abstract

Measuring the performance of private equity investments (buyout and venture) has historically only been possible over long horizons because the IRR on a fund is only observable following the fund’s final distribution. We propose a new approach to evaluating performance using actual prices paid for limited partner shares of funds in secondary markets. We construct indices of buyout and venture capital performance using a proprietary database of secondary market prices between 2006 and 2017. These transaction-based indices exhibit significantly higher betas and volatilities, and lower alphas than NAV-based indices built from Preqin and obtained from Burgiss. There are a number of potential uses for these indices. In particular, they provide a way to track the returns of the buyout and venture capital sectors on a quarter-to-quarter basis and to value illiquid stakes in funds.

Keywords: Private Equity, Secondary Market for Private Equity Funds, Market Index

JEL Classification: G11, G23, G24

Suggested Citation

Boyer, Brian H. and Nadauld, Taylor and Vorkink, Keith and Weisbach, Michael S., Private Equity Indices Based on Secondary Market Transactions (October 24, 2018). Charles A. Dice Center Working Paper No. 2018-21. Available at SSRN: https://ssrn.com/abstract=3272357 or http://dx.doi.org/10.2139/ssrn.3272357

Brian H. Boyer

Brigham Young University - J. Willard and Alice S. Marriott School of Management ( email )

Provo, UT 84602
United States

Taylor Nadauld

Brigham Young University ( email )

Provo, UT 84602
United States

Keith Vorkink

Brigham Young University - J. Willard and Alice S. Marriott School of Management ( email )

Provo, UT 84602
United States

Michael S. Weisbach (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI) ( email )

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

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