The Risk and Return of Private Equity


An overview of the methodologies used to evaluate private equity performance. The presentation will feature key facts about returns, risks, and data sources at the fund level. Investment-level data will also be discussed.

Date: September 28th, 2020


Suggested Readings (bold recommended)

Albuquerque, R. A., Cassel, J., Phalippou, L., & Schroth, E. J. (2018). Liquidity provision in the secondary market for private equity fund stakes. Available at SSRN 3182481.

Albertus, James F., and Matthew Denes. "Private Equity Fund Debt: Capital Flows, Performance, and Agency Costs." Working Paper (May 26, 2020) (2020).

Ang A, Chen B, Goetzmann WN, Phalippou L. 2018. Estimating private equity returns from limited partner cash flows. J. Finance 73:1751–83

Barber, Brad M., and Ayako Yasuda. "Interim fund performance and fundraising in private equity." Journal of Financial Economics 124.1 (2017): 172-194.

Boyer, B., Nadauld, T. D., Vorkink, K. P., & Weisbach, M. S. (2018). Private equity indices based on secondary market transactions (No. w25207). National Bureau of Economic Research.

Braun, Reiner, Tim Jenkinson, and Ingo Stoff. "How persistent is private equity performance? Evidence from deal-level data." Journal of Financial Economics 123.2 (2017): 273-291.

Brown, Gregory W., Oleg R. Gredil, and Steven N. Kaplan. "Do private equity funds manipulate reported returns?." Journal of Financial Economics 132.2 (2019): 267-297.

Brown, Gregory W., Eric Ghysels, and Oleg Gredil. "Nowcasting Net Asset Values: The Case of Private Equity." Available at SSRN 3507873 (2019).

Cao, C., Farnsworth, G., Liang, B., & Lo, A. W. (2017). Return smoothing, liquidity costs, and investor flows: Evidence from a separate account platform. Management Science, 63(7), 2233-2250.

Chakraborty, Indraneel, and Michael Ewens. "Managing performance signals through delay: Evidence from venture capital." Management Science 64.6 (2018): 2875-2900.

Cochrane, John H. "The risk and return of venture capital." Journal of financial economics 75.1 (2005): 3-52.

Couts, Spencer, Andrei Gonçalves, and Andrea Rossi. "Unsmoothing Returns of Illiquid Funds." USC Lusk Center of Real Estate Working Paper Series (2020).

Dimson, Elroy. "Risk measurement when shares are subject to infrequent trading." Journal of Financial Economics 7.2 (1979): 197-226.

Ewens, Michael, Alexander S. Gorbenko, and Arthur Korteweg. Venture capital contracts. No. w26115. National Bureau of Economic Research, 2019.

Ewens, Michael, Charles M. Jones, and Matthew Rhodes-Kropf. "The price of diversifiable risk in venture capital and private equity." The Review of Financial Studies 26.8 (2013): 1854-1889.

Ewens, Michael, and Matthew Rhodes‐Kropf. "Is a VC Partnership Greater than the Sum of its Partners?." The Journal of Finance 70.3 (2015): 1081-1113.

Franzoni, Francesco, Eric Nowak, and Ludovic Phalippou. "Private equity performance and liquidity risk." The Journal of Finance 67.6 (2012): 2341-2373.

Goetzmann, William N., Elise Gourier, and Ludovic Phalippou. "How Alternative Are Private Markets?." Available at SSRN 3227020 (2018).

Gompers, P. A., Gornall, W., Kaplan, S. N., & Strebulaev, I. A. (2020). How do venture capitalists make decisions?. Journal of Financial Economics, 135(1), 169-190.

Gompers, Paul A., and Josh Lerner. "Risk and reward in private equity investments: The challenge of performance assessment." The Journal of Private Equity (1997): 5-12.

Gornall, Will, and Ilya A. Strebulaev. "Squaring venture capital valuations with reality." Journal of Financial Economics 135.1 (2020): 120-143.

Gredil, Oleg, Morten Sorensen, and William Waller. "Evaluating private equity performance using stochastic discount factors." Available at SSRN 3506847 (2019).

Gupta, A., & Van Nieuwerburgh, S. (2019). Valuing private equity investments strip by strip. Working Paper.

Harris, Robert S., Tim Jenkinson, and Steven N. Kaplan. "Private equity performance: What do we know?." The Journal of Finance 69.5 (2014): 1851-1882.

Hwang, Min, John M. Quigley, and Susan E. Woodward. "An index for venture capital, 1987-2003." Contributions to Economic Analysis & Policy 4.1 (2005): 13.

Jenkinson, Tim, Miguel Sousa, and Rüdiger Stucke. "How fair are the valuations of private equity funds?." Available at SSRN 2229547 (2013).

Kaplan, Steven N., and Antoinette Schoar. "Private equity performance: Returns, persistence, and capital flows." The journal of finance 60.4 (2005): 1791-1823.

Kerr, William R., Ramana Nanda, and Matthew Rhodes-Kropf. "Entrepreneurship as experimentation." Journal of Economic Perspectives 28.3 (2014): 25-48.

Korteweg, Arthur. "Risk Adjustment in Private Equity Returns." Annual Review of Financial Economics 11 (2019): 131-152.

Korteweg, Arthur, and Stefan Nagel. "Risk‐adjusting the returns to venture capital." The Journal of Finance 71.3 (2016): 1437-1470.

Korteweg, Arthur, and Morten Sorensen. "Skill and luck in private equity performance." Journal of Financial Economics 124.3 (2017): 535-562.

Long, Austin M., and Craig J. Nickels. "A private investment benchmark." Working paper (1996).

Metrick, Andrew, and Ayako Yasuda. "The economics of private equity funds." The Review of Financial Studies 23.6 (2010): 2303-2341.

Peng L. 2001. Building a venture capital index.Work. Pap., Univ. Colo., Boulder

Peters RH. 2018. Volatility and venture capital.Work. Pap., Tulane Univ., New Orleans

Popular Data Sources

Cambridge Associates

CB Insights (acquired VentureSource in 2020)