Valuing Private Equity
通过求解风险厌恶机构投资者的资产配置模型，评估私募股权投资绩效，发现典型的2-20报酬合约需要显著的超额收益才能使有限合伙人盈亏平衡，且杠杆可降低该平衡点。
To evaluate the performance of private equity (PE) investments, we solve and calibrate a simple asset-allocation model for a risk-averse institutional investor. In addition to traditional stocks and bonds, this investor is a limited partner (LP) in a PE fund. The fund is illiquid and holds a PE asset, managed by a general partner (GP) who generates alpha and charges management and performance fees. Under incomplete markets, we derive tractable expressions for the LP’s portfolio weights, consumption rule, and certainty-equivalent valuation of the PE investment. We find that the typically observed 2-20 compensation contract requires a substantial alpha for the LP to break even. Leverage reduces this break-even alpha since the GP can generate alpha on a larger asset base. Evaluating empirical PE performance measures under our model, we find that their usual interpretation seem optimistic. On average, LPs appear to just break even.