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.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
9454.
Length: Date of creation: Jan 2003 Date of revision: Handle: RePEc:nbr:nberwo:9454
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Zwart, G.J. de & Frieser, B. & Dijk, D.J.C. van, 2007.
"A Recommitment Strategy for Long Term Private Equity Fund Investors,"
Research Paper
ERS-2007-097-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
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