IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

The time-varying risk of listed private equity

  • Kaserer, Christoph

    (Technische Universitat München)

  • Lahr, Henry

    ()

    (Technische Universität München)

  • Liebhart, Valentin

    (Technische Universität München)

  • Mettler, Alfred

    (Georgia State University)

Structure and stability of private equity market risk are still nearly unknown, since market prices are mostly unobservable for this asset class. This paper aims to fill this gap by analyzing market risks of listed private equity vehicles. We show that aggregate market risk varies strongly over time and is positively correlated with the market return variance. Cross-sections of market risk are highly unstable, whereas ranks of individual vehicles within yearly subsamples change slightly less over time. Individual CAPM betas are predictable only up to two to three years into the future and quickly converge to a stationary distribution when measured in risk classes in an empirical Markov transition matrix. We suspect that market risk of private equity is affected by factors unique to this sector: acquisitions and divestments that constantly rebalance portfolios, scarcity of information about portfolio companies, and rapid changes within portfolio companies. Unstable market risk seems to be a fundamental characteristic of private equity assets, which must be incorporated into valuation and portfolio allocation processes by long-term private equity investors. Large increases in systematic risk in recent years cast doubt on diversification benefits of private equity in times of crisis.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Article provided by Capco Institute in its journal Journal of Financial Transformation.

Volume (Year): 28 (2010)
Issue (Month): ()
Pages: 87-93

as
in new window

Handle: RePEc:ris:jofitr:1418
Contact details of provider: Postal: 120 Broadway, 29th Floor New York, NY 10271
Phone: +1 212 284 8600
Web page: http://www.capco.com/
Email:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ris:jofitr:1418. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Springett)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.