Listed Private Equity Research Articles

A Static and Dynamic Analysis of the S&P ListedPrivate Equity Index for the NASDAQ, Dow Jones,S&P 500, and NYSE

This study explores the explanatory relationship between the S&P Private Equity Index and other market indicators. The results indicate that the S&P 500 Index and the NYSE were the two indices that had the maximum effective range and explained the most variation in the private equity index. These findings suggest that the PE index is most sensitive to these two indices. The study also indicates that foreign companies operating in the U.S. listed as American Depository Rights (ADRs) contributed to the growth of the S&P Listed Private Equity Index during 2009 to 2011.

Listed vs. Unlisted Private Equity (First Version)

This paper addresses the question whether the net asset value (NAV) return of listed private equity is similar to the NAV return of unlisted private equity funds. I use NAV indices from LPX and NAV data from Preqin. I find a high correlation between the NAV of listed and unlisted private equity. A cointegration analysis shows that the NAV of listed and unlisted private equity are cointegrated. I also find that the NAV returns of unlisted private equity funds can be explained by the NAV returns of listed private equity. Volatility of LPX NAV indices is substantially lower than volatility of market price based total return (TR) indices.

S&P Listed Private Equity Index: Performance Analysis and Maximizing the Coefficient of Determination

This research study examines the relationship of the S&amp;P Listed Private Equity Index (LPE) with the S&amp;P 500, S&amp;P 600, S&amp;P 400, and S&amp;P Global 1200 Indices by calculating the coefficient of determination during the last five years. The S&amp;P LPE is composed of 30 leading listed private equity companies that meet size, liquidity, exposure, and activity requirements. The coefficient of determination indicates the percentage of the variation in the S&amp;P LPE that can be explained and accounted for by the S&amp;P 500, S&amp;P 600, S&amp;P 400, and S&amp;P Global 1200 in the regression analysis. The study also investigates the performance of the S&amp;P LPE relative to the other indices. The performance was measured by calculating the yearly as well as five-year Sharpe ratios of the S&amp;P LPE and comparing them with the Sharpe ratios of the market indices. The study shows that the S&amp;P LPE had lower fiveyear average returns than did the S&amp;P 500,S&amp;P 600,S&amp;P 400, and S&amp;P Global 1200. The five-year Sharpe ratios also indicate that the S&amp;P LPE was not able to outperform these four market indices during last five years. <b>TOPICS:</b>Private equity, statistical methods, performance measurement, style investing

The S&amp;P Private Equity Index versus the Private Equity Total Return Index: A Volatility Comparison

This article analyzes and compares the daily volatility behavior shown by the S&amp;P private equity index and private equity total return index from October 2006 to December 2010.The S&amp;P private equity index is the index for the top-30 listed private equity firms, whereas the private equity total return index includes all U.S. private equity firms. The volatility for the two indexes is calculated with the help of generalized autoregressive conditional hetroskedasticity (GARCH), and future estimates for next six months are made. The results show that the S&amp;P private equity index has more volatility than the private equity total return index. The first reason is that the S&amp;P private equity index comprises only 30 companies, whereas the private equity total return index includes all the private equity funds operating in U.S. The second reason is that companies in the total private equity index made less risky investments than those of the S&amp;P private equity index for financing private equity and leveraged buyouts. <b>TOPICS:</b>Private equity, volatility measures, statistical methods

Institutional Investment in Listed Private Equity

Abstract This paper examines institutional investors’ propensity to invest in a relatively unknown asset class of listed private equity. Based on data provided by LPEQ, Preqin and Scorpio Partnership covering 171 institutional investors in Europe in 2008–2010, we find allocations are primarily a function of size, type, location, decision‐making authority and liquidity preferences. Investment in listed private equity is more commonly made by institutions that are smaller, private (not public) pension institutions, institutions that have a preference for liquidity, quick access, and administrative and cash flow management simplicity, and institutions that are based in the UK, Switzerland, Sweden and the Netherlands. As well, institutions are less likely to invest in listed private equity when investment decision‐making is empowered to an alternative asset class team.

Modeling and managing portfolios including listed private equity

Listed private equity (LPE) provides investors with a liquid means of considering private equity in their portfolios. This paper presents a first-order autoregressive Markov-switching model (ARMS) which is able to capture the characteristics of the asset classes bonds, stocks, and LPE, such as heavy tails and autocorrelation. Optimizing a portfolio between bonds, stocks, and LPE shows that an investor benefits from including LPE due to the high diversification effects, which also holds for a very risk-averse investor. Allocating a portfolio with the presented Markov-switching optimization can help to significantly outperform a portfolio which is optimized assuming an underlying geometric Brownian motion (GBM) – even during the financial crisis: The terminal value of a portfolio of a model investor with medium risk aversion was on average 8.7% higher over the three years 2007–2009 than the GBM portfolio.

Private equity bids in Australia: an exploratory study

AbstractIn this study, we provide an insight into how private equity players choose their targets and the bid arrangements they prefer. We test our expectations of the unique features of private equity targets using a sample of 23 listed private equity target firms during 2001–2007. We find, relative to a benchmark sample of 81 corporate targets matched by year and industry, the private equity target firms to be larger, more profitable, use their assets more efficiently, more highly levered and have greater cash flow. Multivariate testing indicates that private equity targets have relatively greater financial slack, greater financial stability, greater free cash flow and lower measurable growth prospects. All conclusions are found to be robust to a control sample of 502 takeover bids during 2001–2007.

Institutional Investment in Listed Private Equity

This paper examines institutional investors’ propensity to invest in a relatively unknown asset class of listed private equity. Based on data provided by LPEQ and Preqin covering 100 institutional investors in Europe in 2008, we find allocations are primarily a function of size, type, location, decision-making authority and liquidity preferences. Investment in listed private equity is more commonly made by institutions that are smaller, private (not public) pension institutions, institutions that have a preference for liquidity, and institutions that are based in the UK. As well, institutions are more likely to invest in listed private equity when investment decision-making is not empowered to a private equity team, an alternative asset class team, or a board/investment committee, but are more likely when decision-making is delegated to an equities team.

Risk and Return Characteristics of Listed Private Equity

We first discuss the differences between LPs and LPE before presenting the main characteristics of listed private equity, its advantages and potential shortcomings, and its development over recent years. We also investigate the experience of LPEs during the recent financial market downturn. Finally, we discuss the issue of private equity performance measurement and present the most recent findings in the empirical analysis of listed private equity performance by examining its risk and return characteristics. We conclude with an outlook on the listed private equity universe, especially by considering the recent final market turmoil and liquidity dry-out.

Net Asset Value Discounts in Listed Private Equity Funds

This paper investigates determinants and consequences of net asset value discounts in listed private equity funds. Listed private equity funds share characteristics of closed-end mutual funds and traditional unlisted private equity funds and can therefore offer insights into both. Our results have particular relevance to the pricing of unlisted private equity funds where no market prices are observable. We find that funds start at an initial premium of -2.5 % and adapt to the long-term average of -21 % after two years. Fund returns display a U-shaped seasonality, which is related to publishing dates of annual reports. Stock performance is exceptionally weak in buyout funds after their initial public offering. Premia predict future stock returns and are explained by liquidity and by investor sentiment, but not by the fund's investment degree. A decrease in premia over the first few quarters after the fund's IPO remains unexplained, which partially supports the management ability hypothesis. Private equity fund premia depend on credit markets and systematic risk. This relation suggests that some information about the fund's portfolio is not reflected in net asset values, which seem to proxy for future fund cash flows.

Private Equity Benchmarks and Portfolio Optimization

Portfolio optimization with private equity is based on one of three different indices: listed private equity indices, transaction-based private equity indices, and appraisal value based private equity indices. We show that none of these indices are appropriate for portfolio optimization. We introduce a new benchmark index for buyouts and venture capital. Our benchmark is updated monthly, adjusted for autocorrelation (de-smoothing) and available contemporaneously. We show our benchmark enables superior quantitative portfolio optimization.

Net Asset Value Discounts in Listed Private Equity Funds

Net Asset Value Discounts in Listed Private Equity Funds

Organizational Forms and Risk of Listed Private Equity

This article investigates the stock performance of listed private equity and develops a classification of vehicles according to their organizational structure. The authors identify and examine 274 liquid listed private equity entities in the period from 1986 to 2008. The listed private equity shows a Dimson beta of 1.7 without any significant excess return, and vehicles differ strongly depending on their organizational form. Market risk is high in internally managed vehicles but low in externally managed ones. The authors conclude that different sources of cash flows, such as management fees and carried interest, can account for these risk characteristics. Precautions must be taken, therefore, when using specific listed private equity vehicles as a proxy for traditional private equity funds.

Net Asset Value Discounts in Listed Private Equity Funds

This paper investigates determinants and consequences of net asset value discounts in listed private equity funds. Listed private equity funds share characteristics of closed-end mutual funds and traditional unlisted private equity funds and can therefore offer insights into both. Our results have particular relevance to the pricing of unlisted private equity funds where no market prices are observable. We find that funds start at a zero initial premium and adapt to the long-term average of -26 % after two years. Premia can be explained by investor sentiment and to some extent by liquidity, but not by managerial ability. A decrease in premia over the first few quarters after a fund's IPO seems to be caused by the timing of fund IPOs. Private equity fund premia also depend on disclosure requirements and systematic risk, which suggests that some information about the fund's portfolio is not reflected in net asset values. Premia predict future stock returns, which also display seasonalities that are related to the calendar year as well as to the fund's fiscal year.

The Risk and Return of Private Equity Using Market Prices

Drawing on a unique and comprehensive data set that includes more than 700 listed private equity companies (LPEs), we analyze the historical risk profile of these investment vehicles from 1994 until 2008. We find that a return index of LPEs has similar risk properties compared to a return index of listed private equity fund of funds. Both of these indices indicate that the private equity (PE) asset class suffers from substantial exposure to stock market risk as well as other measures of macroeconomic activity. In contrast with previous studies, our analysis uses the market price as an objective measure of per share value, and therefore, it does not need to rely on the self-reported internal rate of return or net asset value imputed for assets that are inherently difficult to appraise to calculate the return for the private equity companies. In a cross-sectional analysis we also investigate the influence of organizational structure, size, experience, listing exchange, financing stage, geographic positioning, and industry focus on the fund discount (NAV/Price).

Listed Private Equity

Listed Private Equity

Risk and Expected Returns of Private Equity Investments: Evidence Based on Market Prices

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 about one to two percent. We also find that the market expects listed private equity funds to earn zero to 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 correlated with GDP growth and negatively correlated with the credit spread. Finally, 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.