An Economic Case for Transparency in Private Equity: Data Science, Interest Alignment and Organic Finance

37 Pages Posted: 28 Sep 2021

See all articles by Ashby Monk

Ashby Monk

Stanford University

Sheridan Porter

FEV Analytics Corp

Rajiv Sharma

Stanford University

Date Written: September 27, 2021

Abstract

The private equity asset class has grown rapidly since 2008, attracting institutional investors in need of higher returns than those expected from public markets. But while most investors would say they have been rewarded with good performance, this success is hard to objectively demonstrate due to intransitive metrics and unmeasured risks. It is our belief that there is a pressing need to substantiate the economic case for private equity. In this article, we describe a new transparency framework, which we situate in our research agenda on ‘organic finance’. The framework uses data science technology to operationalize private equity data and institute a scientific approach to performance measurement. We elucidate what scientific measurement should look like in private equity, incorporating examples of technologies in use today. We also reveal how bringing new levels of transparency into the asset class can, on its own, create significant value. Finally, we look at the effect of organic finance on the industry, connecting greater transparency to a structural shift that enables efficiencies, expansion, and innovation. The magnitude and sustainability of this shift reinforces the economic case for private equity, albeit with far more transparency than is practiced today.

Keywords: private equity, institutional investment, asset management, investing, fees, organic finance

Suggested Citation

Monk, Ashby and Porter, Sheridan and Sharma, Rajiv, An Economic Case for Transparency in Private Equity: Data Science, Interest Alignment and Organic Finance (September 27, 2021). Available at SSRN: https://ssrn.com/abstract=3931906 or http://dx.doi.org/10.2139/ssrn.3931906

Ashby Monk (Contact Author)

Stanford University ( email )

United States

Sheridan Porter

FEV Analytics Corp ( email )

Kirkland, WA 98033
United States

Rajiv Sharma

Stanford University ( email )

Stanford, CA 94305
United States

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