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A Simple Utility Approach to Private Equity Sales

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  • Robert Dubil

    (San Jose State University)

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    Abstract

    The paper examines the liquidity risk of a private equity firm that decides to dispose of a large holding in its portfolio. As the sale takes time, it requires a careful balancing act of the exposure to the fluctuations in the market value of the investment against the large sale-induced price depression. A mean-standard deviation utility framework is an appealing decision tool for optimizing protracted asset dispositions. The firm maximizes the expected profit from the sale strategy net of the price concession minus a penalty function for exposure to the price risk, with the penalty weight related to a loss confidence interval.

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    File URL: http://jefsite.org/RePEc/pep/journl/jef-2003-08-1-g-dubil.pdf
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    Bibliographic Info

    Article provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Entrepreneurial Finance and Business Ventures.

    Volume (Year): 8 (2003)
    Issue (Month): 1 (Spring)
    Pages: 103-110

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    Handle: RePEc:pep:journl:v:8:y:2003:i:1:p:103-110

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    Related research

    Keywords: Private Equity; Utility; Venture Capital;

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