Working Paper: NBER ID: w15335
Authors: Narasimhan Jegadeesh; Roman Krussl; Joshua Pollet
Abstract: We estimate the risk and expected returns of private equity investments based on the market prices of exchange-traded funds of funds that invest in unlisted private equity funds. Our results indicate that the market expects unlisted private equity funds to earn abnormal returns of approximately 1% per year. We also find that the market expects listed private equity funds to earn zero or marginally negative abnormal returns net of fees. Both listed and unlisted private equity funds have market betas close to one and positive factor loadings on the Fama-French SMB factor. Private equity fund returns are positively related to GDP growth and negatively related to the credit spread. In addition, we find that market returns of exchange traded funds of funds and listed private equity funds predict changes in self-reported book values of unlisted private equity funds.
Keywords: private equity; expected returns; market prices; fund of funds
JEL Codes: G12; G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| GDP growth (O49) | private equity returns (G12) |
| credit spreads (G12) | private equity returns (G12) |
| market returns of listed fund of funds (G23) | changes in self-reported book values of unlisted private equity funds (G23) |
| market prices of funds of funds (G19) | expected returns of private equity investments (G12) |