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Private Equity Indices Based on Secondary Market Transactions

Author

Listed:
  • Boyer, Brian

    (Brigham Young University - J. Willard and Alice S. Marriott School of Management)

  • Nadauld, Taylor D.

    (Brigham Young University)

  • Vorkink, Keith P.

    (Brigham Young University - J. Willard and Alice S. Marriott School of Management)

  • Weisbach, Michael S.

    (Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI))

Abstract

Measuring the performance of private equity investments (buyout and venture) has historically only been possible over long horizons because the IRR on a fund is only observable following the fund’s final distribution. We propose a new approach to evaluating performance using actual prices paid for limited partner shares of funds in secondary markets. We construct indices of buyout and venture capital performance using a proprietary database of secondary market prices between 2006 and 2017. These transaction-based indices exhibit significantly higher betas and volatilities, and lower alphas than NAV-based indices built from Preqin and obtained from Burgiss. There are a number of potential uses for these indices. In particular, they provide a way to track the returns of the buyout and venture capital sectors on a quarter-to-quarter basis and to value illiquid stakes in funds.

Suggested Citation

  • Boyer, Brian & Nadauld, Taylor D. & Vorkink, Keith P. & Weisbach, Michael S., 2018. "Private Equity Indices Based on Secondary Market Transactions," Working Paper Series 2018-21, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2018-21
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    Cited by:

    1. Godwin, Alexander, 2022. "Estimating illiquid asset class alpha and beta using secondary transaction prices," MPRA Paper 112510, University Library of Munich, Germany.
    2. Sophie Pommet & Alexandra Rufini & Dominique Torre, 2024. "The role of lead investors in equity crowdfunding campaigns with a secondary market," Small Business Economics, Springer, vol. 63(1), pages 243-273, June.
    3. Kallenos, Theodosis L. & Nishiotis, George P., 2023. "Market-based private equity returns," Journal of Banking & Finance, Elsevier, vol. 157(C).
    4. Matthias Fleckenstein & Francis A. Longstaff, 2023. "Small Business Equity Returns: Empirical Evidence from the Business Credit Card Securitization Market," Journal of Finance, American Finance Association, vol. 78(1), pages 389-425, February.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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