A new method to estimate risk and return of non-traded assets from cash flows: The case of private equity funds
Driessen,J.J.A.G. Lin,T.C. Phalippou,L.
Driessen,J.J.A.G.
Lin,T.C.
Phalippou,L.
Abstract
We develop a new methodology to estimate abnormal performance and risk exposure of nontraded assets from cash flows. Our methodology extends the standard internal rate of return approach to a dynamic setting. The small-sample properties are validated using a simulation study. We apply the method to a sample of 958 private equity funds. For venture capital funds, we find a high market beta and underperformance before and after fees. For buyout funds, we find a relatively low market beta and no evidence for outperformance. We find that self-reported net asset values significantly overstate fund values for mature and inactive funds.
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Date
2012
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Research Projects
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Citation
Driessen, J J A G, Lin, T C & Phalippou, L 2012, 'A new method to estimate risk and return of non-traded assets from cash flows : The case of private equity funds', Journal of Financial and Quantitative Analysis, vol. 47, no. 3, pp. 511-535. https://doi.org/10.1017/s0022109012000221