The Impact of Smoothness on Private Equity Expected Returns

Abstract

Return smoothing in private assets is attractive for many investors. This feature is not costless, however. A smoothness preference might offset any fair illiquidity premium in private assets.

TOPICS: Private equity, performance measurement, fundamental equity analysis, quantitative methods, statistical methods, equity portfolio management

Key Findings

• • Return smoothing in private assets is attractive for many investors.

• • This feature is not costless, however.

• • A smoothness preference might offset any fair illiquidity premium in private assets.