We characterise the factors common between public and private equity (PE) returns as well as the factors specific to private and public returns, respectively. Using a comprehensive dataset of PE funds and recent advances in PE fund returns nowcasting at high frequency and factor extraction in a grouped data setting, we show that, albeit over 90% of PE returns may be explained by factors common with the matched public equities, the remaining variation exhibits robust factors that are distinct to PE.
- Speaker
- Date
- Thursday 13 Mar 2025, 12:00 - 13:00
- Type
- Seminar
- Spoken Language
- English
- Room
- ET-14
- Building
- E Building
- Location
- Campus Woudestein
These PE-specific factors significantly increase a portfolio’s Sharpe ratio through higher expected return and better diversification. The optimal allocation to PE is positive at the 95% confidence level—at 11 to 24% of risky portfolio, depending on the public equity portfolio characteristics—even after accounting for sampling error and imposing the no-shorting constraint within the PE portfolio.
Additionally, we show that the two most commonly used datasets on PE fund returns have virtually identical common factors with public equities, but over half of their PE-specific variation is distinct from one another.
Our approach ensures that the alpha we find cannot be mimicked by a tailored-enough portfolio of listed equities.
The paper is publicly available on Social Science Research Network (SSRN)
See also
- More information
Do you want to know more about the event? Contact the secretariat Econometrics at eb-secr@ese.eur.nl.
