Private Equity Indices Based on Secondary Market Transactions
Charles A. Dice Center Working Paper No. 2018-21
55 Pages Posted: 25 Oct 2018 Last revised: 14 Sep 2019
Date Written: September 11, 2019
We propose a new approach to evaluating the performance of private equity investments using actual prices paid for LP shares of funds transacted in secondary markets. Our transaction-based indices exhibit substantially higher CAPM betas and lower alphas than NAV-based indices even after adjusting for staleness in NAVs. Our indices load on an additional funding liquidity factor that is uncorrelated with NAV-based index returns. In comparison, a listed PE index exhibits similar loadings on the market and funding liquidity factor as our indices, but significantly lower average returns. Our indices are useful for quarter-to-quarter benchmarking and valuing illiquid stakes in funds.
Keywords: Private Equity, Secondary Market for Private Equity Funds, Market Index
JEL Classification: G11, G23, G24
Suggested Citation: Suggested Citation