Valuing Private Equity / Morten Sorensen, Neng Wang, Jinqiang Yang.

Format:

Book

Author/Creator:

Sorensen, Morten.

Contributor:

National Bureau of Economic Research.

Wang, Neng.

Yang, Jinqiang.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19612.

NBER working paper series no. w19612

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

We investigate whether the performance of Private Equity (PE) investments is sufficient to compensate investors (LPs) for risk, long-term illiquidity, management and incentive fees charged by the general partner (GP). We analyze the LP's portfolio-choice problem and find that management fees, carried interest and illiquidity are costly, and GPs must generate substantial alpha to compensate LPs for bearing these costs. Debt is cheap and reduces these costs, potentially explaining the high leverage of buyout transactions. Conventional interpretations of PE performance measures appear optimistic. On average, LPs may just break even, net of management fees, carry, risk, and costs of illiquidity.

Notes:

Print version record

November 2013.