Abstract

We apply advances in analysis of mix frequency and sparse data to estimate \unsmoothed” private equity (PE) Net Asset Values (NAVs) at the weekly frequency for individual funds. Using simulations and a large sample of buyout and venture funds, we show that our method yields superior estimates of fund asset values than a simple approach based on comparable public asset and as-reported NAVs. Our method easily accommodates additional data on PE fund portfolios, such as individual holdings, relevant mergers and acquisitions, secondary trades with fund stakes; extends to other illiquid portfolios that are subject to appraisal bias while generating irregular and infrequent cash flows. We find significant variation in systematic and idiosyncratic risk exposures across PE funds and through time. The risk-return profile based on the samples from the 1990s is not representative of currently operating funds. The market beta of an average buyout [venture] fund, at 1.05{1.10 [1.20{1.32], is notably lower than previous studies suggest, while nudging higher exposures results in inferior now-casts. The overall risk of a median buyout [venture] fund is 33% [38%] per year if measured in standard deviations of total returns, an increase of 10 [13] percentage points relative to the series based on as-reported NAVs.

Authors

Gregory W. Brown, UNC Kenan-Flagler Business School
Eric Ghysels, UNC Kenan-Flagler Business School
Oleg Gredil, Tulane University, A. B. Freeman School of Business