Working Paper: NBER ID: w25207
Authors: Brian Boyer; Taylor D. Nadauld; Keith P. Vorkink; Michael S. Weisbach
Abstract: Measuring the performance of private equity investments (buyout and venture) has historically only been possible over long horizons because the IRR on a fund is only observable following the fund’s final distribution. We propose a new approach to evaluating performance using actual prices paid for limited partner shares of funds in secondary markets. We construct indices of buyout and venture capital performance using a proprietary database of secondary market prices between 2006 and 2017. These transaction-based indices exhibit significantly higher betas and volatilities, and lower alphas than NAV-based indices built from Preqin and obtained from Burgiss. There are a number of potential uses for these indices. In particular, they provide a way to track the returns of the buyout and venture capital sectors on a quarter-to-quarter basis and to value illiquid stakes in funds.
Keywords: No keywords provided
JEL Codes: G11; G23; G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| transaction-based indices (C43) | higher betas (C46) |
| transaction-based indices (C43) | higher volatilities (C58) |
| transaction-based indices (C43) | lower alphas (C46) |
| buyout funds (G34) | performance of a portfolio of highly leveraged firms (G32) |
| buyout funds (G34) | risk-adjusted performance (C52) |
| venture funds (G24) | risk-adjusted performance (C52) |
| NAV-based indices (G12) | understated volatility of private equity (G19) |
| 2008 financial crisis (F65) | decline in value of private equity (G32) |