The Cash Flow, Return and Risk Characteristics of Private Equity

43 Pages Posted: 30 Jan 2003 Last revised: 2 Nov 2022

See all articles by Alexander Ljungqvist

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR); Swedish House of Finance; European Corporate Governance Institute (ECGI)

Matthew P. Richardson

Department of Finance, Leonard N. Stern School of Business, New York University

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Date Written: January 2003

Abstract

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.

Suggested Citation

Ljungqvist, Alexander and Ljungqvist, Alexander and Richardson, Matthew P., The Cash Flow, Return and Risk Characteristics of Private Equity (January 2003). NBER Working Paper No. w9454, Available at SSRN: https://ssrn.com/abstract=375306

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Matthew P. Richardson (Contact Author)

Department of Finance, Leonard N. Stern School of Business, New York University ( email )

44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States
+1 (212) 998-0349 (Phone)
212-995-4233 (Fax)

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