Working Paper: NBER ID: w9454
Authors: Alexander Ljungqvist; Matthew Richardson
Abstract: Using a unique dataset of private equity funds over the last two decades, this paper analyzes the cash flow, return, and risk characteristics of private equity. We document the draw down and capital return schedules for the typical private equity fund, and show that it takes several years for capital to be invested, and over ten years for capital to be returned to generate excess returns. We provide several determining factors for these schedules, including existing investment opportunities and competition amongst private equity funds. In terms of performance, we document that private equity generates excess returns on the order of five plus percent per annum relative to the aggregate public equity market. One interpretation of this magnitude is that it represents compensation for holding a 10-year illiquid investment.
Keywords: No keywords provided
JEL Codes: G0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| time (C41) | capital deployment (G31) |
| timing of cash flows (G14) | realization of excess returns (G11) |
| capital investment patterns (G31) | cash flow returns (G19) |
| investment opportunities (G24) | speed of capital deployment (G31) |
| competition among funds (G23) | speed of capital deployment (G31) |
| cash flow dynamics (D25) | private equity fund performance (G23) |