We reconcile the major approaches in the literature to benchmark cash flow-based returns of private equity investments against public markets, a.k.a. 'Public Market Equivalent' methods. We show that the existing methods to calculate annualized excess returns are heuristic in nature, and propose...

This paper extends the standard Merton portfolio choice model to include illiquid private equity funds. This is done in a realistic modeling framework where private equity funds cannot be traded during their entire bounded lifecycle and involve capital commitments and intermediate capital...

This report reviews the evidence on risk, return and fees of private equity funds. It looks at the benefits and costs of being a large investor in private equity, at fund selection. Finally, it discusses how to benchmark investments in private equity

Portfolio optimization with private equity is based on one of three different indices: listed private equity indices, transaction-based private equity indices, and appraisal value based private equity indices. We show that none of these indices are appropriate for portfolio optimization. We...

Portfolio optimization using private equity is typically based on one of three indices: listed private equity, transaction-based private equity, or appraisal value-based private equity indices. However, we show that none of these indices is fully suitable for portfolio optimization. We introduce...

Private equity is still a relatively young asset class, with some unique characteristics. One feature is the very irregular timing of cash flows, and a consequence of this is that private equity relies on measures of returns that are not standard in other asset classes. As such, new investors...

Uncertainty about manager skill and diversification constraints are hallmarks of investing in alternative assets. This paper quantifies the utility losses to private equity investors arising from these frictions. When calibrated to the data on institutional allocations to private equity and...

We study the asset allocation problem of an institutional investor (LP) that invests in stocks, bonds, and private equity (PE). PE investments are risky, illiquid, and long-term. The LP repeatedly commits capital to PE funds, and this capital is gradually called and eventually distributed back...

We survey the literature on the private equity partnership arrangement from the perspective of an outside investor (limited partner). We examine how the partnership arrangement fits into a broader portfolio of investments, and we consider the methods and difficulties in performance measurement,...

We survey the literature on the private equity partnership arrangement from the perspective of an outside investor (limited partner). We examine how the partnership arrangement fits into a broader portfolio of investments, and we consider the methods and difficulties in performance measurement,...