Can Investors Time Their Exposure to Private Equity?

Abstract

Private equity performance, both for buyouts and venture capital, has been highly cyclical: periods of high fundraising have been followed by periods of low absolute performance. Despite this seemingly predictable variation, we find modest gains, at best, to pursuing more realistic, investable strategies that time capital commitments to private equity. This occurs because investors can only time their commitments to funds; they cannot time when their commitments are called or when their investments are exited. There is a high degree of time-series correlation in net cash flows even across commitment strategies that allocate capital in a very different manner over time.

Citation

Brown, G. W., Harris, R. S., Hu, W., Jenkinson, T., Kaplan, S. N., & Robinson, D. T. (2018). Can investors time their exposure to private equity? (White Paper). Available at SSRN: https://ssrn.com/abstract=3241102