Risk-Adjustment of Buyout Funds Performance: A Bayesian Estimation Procedure

Posted: 26 Nov 2020 Last revised: 23 Jun 2021

See all articles by Aleksandr Ermakov

Aleksandr Ermakov

Universite du Luxembourg - Department of Finance

Date Written: November 25, 2020

Abstract

I examine the performance of 936 buyout (BO) funds incepted during 1980−2015 using Generalized Public Market Equivalent (GPME) proposed in Korteweg and Nagel (2016). The statistical inference implemented within the GMM framework suffers from the problem of poor identification. To solve this I introduce a Bayesian estimation step to calculate GPME. Even though, the uncertainty regarding how to choose the public market index for comparison remains. To address the benchmarking challenge I use a pricing kernel tailored specifically to the geographical and industrial characteristics of the fund. On average, BO funds do not show the outperformance after using this newly proposed approach.

Keywords: Performance of PE Investments, Benchmarking in PE, Buyout Funds, Bayesian GMM, Cyclicality

JEL Classification: G24, G12, C11

Suggested Citation

Ermakov, Aleksandr, Risk-Adjustment of Buyout Funds Performance: A Bayesian Estimation Procedure (November 25, 2020). Available at SSRN: https://ssrn.com/abstract=3731509 or http://dx.doi.org/10.2139/ssrn.3731509

Aleksandr Ermakov (Contact Author)

Universite du Luxembourg - Department of Finance ( email )

L-1511 Luxembourg
Luxembourg
671517875 (Phone)

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