Private Equity: Accomplishments and Challenges

Since the 1980s, there has been an ongoing discussion about the role of private equity (PE) in the economy. As investors have flocked to the asset class, voices critical of the negative social impact of PE have grown louder. In this article, we examine what is known from the academic literature about the effects of private equity on corporate productivity, the returns for investors, and possible broader economic and social consequences.
More

The Evolution of Private Equity Fund Value

This paper provides the first large-sample analysis of buyout and venture capital fund values over their lifetimes. Specifically, we examine interim fund investment multiples (TVPIs), internal rates of return (IRRs), and direct-alphas based on the current reported net asset values (NAVs) at each quarter of a fund’s life.
More

Nowcasting Net Asset Values: The Case of Private Equity

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.
More

Determinants of International Buyout Investments

Using a comprehensive and proprietary data set on inter-national private equity activity, this paper studies the determinants of buyout investments across 61 countries and 19 industries over 1990–2017. The study finds evidence that macroeconomic conditions, development of stock and credit markets, and the regulatory environment in a country are important drivers of international buyout capital flows. The paper shows that countries with low unemployment, more active stock and credit markets, and better rule of law receive more buyout capital. A difference-in-differences approach is used to explore the regulatory reforms some countries have adopted over the sample period. The find-ings are that countries receive significantly more buyout capital following investor protection and contract enforce-ment reforms. The impact of regulatory reform is more pronounced in countries with better corporate governance standards and education. Buyout investment responds to these factors more so than foreign direct investment and gross domestic fixed investment.
More

Filling the U.S. Small Business Funding Gap

Despite having the deepest and most diverse capital markets in the world, the United States still struggles to provide sufficient capital to many small businesses outside of major commercial centers as well as to women-owned and minority-owned businesses regardless of size or location. This paper reviews the academic literature and provides an analysis of some recent data to gain understanding of the causes of these gaps as well as the solutions for filling the gaps. Results indicate that the Small Business Administration’s SBIC program is an effective mechanism for providing capital to underserved geographies as well as to businesses owned by women and underrepresented minorities.
More

Can Investors Time Their Exposure to Private Equity?

Private equity markets are highly cyclical. The aggregate amount of capital committed to the sector varies substantially from peak to trough, and many have observed that periods of high fundraising activity are followed by periods of low absolute performance for the asset class (see Harris, Jenkinson, and Kaplan, among others). This raises an important question: is it possible to market-time the allocations to private equity to avoid the cyclicality of performance?
More

Business and Economic Impact of COVID-19

To help separate fact from fiction and legitimate concern from panic, the Kenan Institute of Private Enterprise and UNC Kenan-Flagler Business School convened six top faculty researchers to discuss the likely effects of the pandemic on business and the economy.
More

Have Private Equity Returns Really Declined?

Kenan Institute Executive Director Greg Brown and University of Chicago Booth School of Business Professor Steve Kaplan have co-authored a new white paper assembling the most current, comprehensive performance data on U.S. private equity buyout funds available. Contrary to some recent articles, this research shows U.S. buyouts have consistently outperformed public markets in the post-crisis era.
More