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The Risk Profile of Private Equity

33 Pages Posted: 7 Feb 2004  

Tom Weidig

QuantExperts

Pierre-Yves Mathonet

European Investment Fund

Date Written: January 2004

Abstract

Private equity is a risky asset, but private equity investments not necessarily so. We look at the risk profile of each type of investment vehicle, and find clear differences. For example in venture capital, the probability of a total loss of capital invested is around 30% for direct investments, and close to zero for funds and funds-of-funds. The probability of a loss for a fund is around 30%, but small for a fund-of-funds. This shows that diversification effects are very important, and need to be taken into account to judge risk. Due to legal or statutory constraints, investors often use less risky vehicles like funds or funds-of-funds.

Keywords: Private equity, venture capital, risk, Basel

JEL Classification: G24

Suggested Citation

Weidig, Tom and Mathonet, Pierre-Yves, The Risk Profile of Private Equity (January 2004). Available at SSRN: https://ssrn.com/abstract=495482 or http://dx.doi.org/10.2139/ssrn.495482

Tom Weidig (Contact Author)

QuantExperts ( email )

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Luxembourg

Pierre-Yves Mathonet

European Investment Fund ( email )

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Luxembourg City, L-2968
Luxembourg
+352 42 66 88 343 (Phone)
+352 42 66 88 410 (Fax)

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