Business Development Companies: Private Equity for Individual Investors

42 Pages Posted: 30 May 2019

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: May 6, 2019

Abstract

Using the universe of Business Development Companies (BDCs) for the period 1998-2017 we examine their performance and risk adjusted characteristics and analyze the relationship between BDC returns and the traditional Private Equity Fund (PEF) returns. We find that a BDC traded factor, significantly explains the returns of the PE cash flow based indices of Ang et al. (2018), over and above other traded factors, suggesting a significant relationship between the returns of BDCs and the time varying private equity premium. The BDC traded factor does not explain the industry appraisal-based PE index returns, which however, are explained by the BDC NAV excess return, highlighting the limitations of these indices relative to a market-based PE index. A comparison of the BDC NAV returns with the returns of appraisal-based indices reveals the presence of similar, albeit weaker, smoothing biases. Finally, an event study analysis reveals significant market reactions to quarterly BDC NAV disclosures.

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

JEL Classification: G23, G24, G12, G14

Suggested Citation

Kallenos, Theodosis L. and Nishiotis, George P., Business Development Companies: Private Equity for Individual Investors (May 6, 2019). 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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