The Cash Flow, Return and Risk Characteristics of Private Equity

43 Pages Posted: 30 Jan 2003 Last revised: 18 May 2010

See all articles by Alexander Ljungqvist

Alexander Ljungqvist

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

Matthew P. Richardson

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); AQR Capital Management, LLC

Multiple version iconThere are 7 versions of this paper

Date Written: January 2003

Abstract

Using a unique dataset of private equity funds over the last two decades, this paper analyzes the cash flow, return, and risk characteristics of private equity. We document the draw down and capital return schedules for the typical private equity fund, and show that it takes several years for capital to be invested, and over ten years for capital to be returned to generate excess returns. We provide several determining factors for these schedules, including existing investment opportunities and competition amongst private equity funds. In terms of performance, we document that private equity generates excess returns on the order of five plus percent per annum relative to the aggregate public equity market. One interpretation of this magnitude is that it represents compensation for holding a 10-year illiquid investment.

Suggested Citation

Ljungqvist, Alexander and Richardson, Matthew P., The Cash Flow, Return and Risk Characteristics of Private Equity (January 2003). NBER Working Paper No. w9454. Available at SSRN: https://ssrn.com/abstract=375306

Alexander Ljungqvist

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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HOME PAGE: http://pages.stern.nyu.edu/~aljungqv

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR)

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European Corporate Governance Institute (ECGI)

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Belgium

Research Institute of Industrial Economics (IFN) ( email )

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Matthew P. Richardson (Contact Author)

New York University (NYU) - Department of Finance ( email )

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National Bureau of Economic Research (NBER)

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AQR Capital Management, LLC ( email )

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United States

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