Risk Adjustment in Private Equity Returns

34 Pages Posted: 19 Dec 2018 Last revised: 18 Sep 2019

See all articles by Arthur G. Korteweg

Arthur G. Korteweg

University of Southern California - Marshall School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 16, 2018


This article reviews empirical methods to assess risk and return in private equity. I discuss data and econometric issues for deal-level, fund-level, and publicly traded partnerships data. Risk-adjusted return estimates vary substantially by method, time period, and data source. The weight of evidence suggests that relative to a similarly risky investment in the stock market, the average venture capital (VC) fund earned positive risk-adjusted returns before the turn of the millennium, but net-of-fee returns have been zero or even negative since. Average leveraged buyout (BO) investments have generally earned positive risk-adjusted returns both before and after fees, relative to a levered stock portfolio. I also consider additional risk factors proposed in the literature. VC looks like a small-growth investment, while BO loads mostly on value. Liquidity and idiosyncratic risks are also discussed.

Keywords: private equity, venture capital, risk, return

JEL Classification: C58, G12, G23, G24

Suggested Citation

Korteweg, Arthur G., Risk Adjustment in Private Equity Returns (November 16, 2018). Available at SSRN: https://ssrn.com/abstract=3293984 or http://dx.doi.org/10.2139/ssrn.3293984

Arthur G. Korteweg (Contact Author)

University of Southern California - Marshall School of Business ( email )

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Los Angeles, CA 90089
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HOME PAGE: http://www.marshall.usc.edu/personnel/arthur-korteweg

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