{"title":"The Risk and Performance of Listed Private Equity","authors":"Hrvoje Kurtović, G. Markarian, P. Breuer","doi":"10.3905/jai.2023.1.191","DOIUrl":null,"url":null,"abstract":"Private equity (PE) risk and performance is a black box for investors, as information is quasi-private during a fund’s life. To overcome this issue, the authors use the universe of listed PEs (LPEs) in US exchanges, which permits the measurement of financial fundamentals based on audited quarterly reports and the observation of share price performance and volatility on a real-time basis. They first show that LPE performance and valuations are highly correlated with those of unlisted PEs and hence are a good proxy. LPEs constantly exhibit leverage double that of the broader market while showing no distinctive share price performance. Controlling for standard determinants of returns, LPE firms do not outperform market benchmarks. Using COVID-19 as an exogenous increase in tail risk, PE firms grossly underperformed, as markets penalized the riskiness and lack of transparency inherent in PE investments. The problems are likely greater in privately held PEs, where performance is self-reported, not audited, and illiquidity periods last up to 10 or 12 years.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.4000,"publicationDate":"2023-05-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Alternative Investments","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.3905/jai.2023.1.191","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Private equity (PE) risk and performance is a black box for investors, as information is quasi-private during a fund’s life. To overcome this issue, the authors use the universe of listed PEs (LPEs) in US exchanges, which permits the measurement of financial fundamentals based on audited quarterly reports and the observation of share price performance and volatility on a real-time basis. They first show that LPE performance and valuations are highly correlated with those of unlisted PEs and hence are a good proxy. LPEs constantly exhibit leverage double that of the broader market while showing no distinctive share price performance. Controlling for standard determinants of returns, LPE firms do not outperform market benchmarks. Using COVID-19 as an exogenous increase in tail risk, PE firms grossly underperformed, as markets penalized the riskiness and lack of transparency inherent in PE investments. The problems are likely greater in privately held PEs, where performance is self-reported, not audited, and illiquidity periods last up to 10 or 12 years.
期刊介绍:
The Journal of Alternative Investments (JAI) provides you with cutting-edge research and expert analysis on managing investments in hedge funds, private equity, distressed debt, commodities and futures, energy, funds of funds, and other nontraditional assets. JAI is the official publication of the Chartered Alternative Investment Analyst Association (CAIA®). JAI provides you with challenging ideas and practical tools to: •Profit from the growth of hedge funds and alternatives •Determine the optimal mix of traditional and alternative investments •Measure and track portfolio performance •Manage your alternative investment portfolio with proven risk management practices