RT Journal Article
SR Electronic
T1 Private Equity Is Still Equity, Nothing Special Here
JF The Journal of Investing
FD Institutional Investor Journals
SP joi.2020.1.150
DO 10.3905/joi.2020.1.150
A1 Nicolas Rabener
YR 2020
UL https://pm-research.com/content/early/2020/10/06/joi.2020.1.150.abstract
AB US private equity returns can be replicated systematically through public equities, historically by selecting small, cheap, and levered stocks. Investing in private equity entails the same economic exposure as investing in public equities, resulting in the high correlation of both asset classes. The volatility of private equity returns is understated as a result of smoothing, and the risk-adjusted returns are comparable to those of public equities. These attributes, in addition to the complexity and illiquidity of the asset class, make private equity unattractive compared to public equities and challenge its current popularity among capital allocators.TOPICS: Private equity, portfolio management/multi-asset allocation, equity portfolio management, performance measurement, volatility measures, quantitative methodsKey Findings• US private equity returns can be replicated systematically via public equities, historically by selecting small, cheap, and levered stocks.• Investing in private equity provides the same economic exposure as investing in public equities, resulting in both asset classes being highly correlated.• The volatility of private equity returns is understated, and risk-adjusted private equity returns are lower than those of public equities.