Market-Based Private Equity Returns

61 Pages Posted: 30 May 2019 Last revised: 13 Jul 2021

See all articles by Theodosis L. Kallenos

Theodosis L. Kallenos

University of Cyprus-School of Economics and Management- Department of Accounting and Finance

George Nishiotis

University of Cyprus-Faculty of Economics and Management-Department of Accounting and Finance

Date Written: July 3, 2021

Abstract

Using the universe of Business Development Companies (BDCs), a unique publicly traded segment of U.S. Private Equity (PE), for the period 1998-2017 we provide the first in depth examination of their performance and risk adjusted characteristics and compare our results to contrasting evidence derived from recently developed time series proxies for unlisted PE returns. BDCs exhibit zero alpha, beta of one and significant exposure to SMB, HML, and CMA factors of 0.5, 0.7, and -0.3, respectively. BDC performance and market beta are sensitive to fund size and leverage. We provide evidence that BDC returns capture both the asset selection and PE ownership elements of the unlisted PE investment strategy. Finally, an event study analysis shows that NAV disclosures become informative only after the adoption of the Statement of Financial Accounting Standards 157 (SFAS 157). We posit that BDCs provide a readily available market-based PE benchmark for use by regulators, market participants, and academics.

Keywords: Business Development Companies, Private Equity, Risk-Return Characteristics, Market-based Performance Measures, Appraisal-based Performance Measures, SFAS 157

JEL Classification: G23, G24, G12, G14

Suggested Citation

Kallenos, Theodosis L. and Nishiotis, George P., Market-Based Private Equity Returns (July 3, 2021). Available at SSRN: https://ssrn.com/abstract=3383461 or http://dx.doi.org/10.2139/ssrn.3383461

Theodosis L. Kallenos

University of Cyprus-School of Economics and Management- Department of Accounting and Finance ( email )

1 University Avenue
P.O. Box 20537
Nicosia, CY-1678
Cyprus
+35722893628 (Phone)
+35722895475 (Fax)

George P. Nishiotis (Contact Author)

University of Cyprus-Faculty of Economics and Management-Department of Accounting and Finance ( email )

Cyprus

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