The Public Market Equivalent and Private Equity Performance.

Morten Sørensen, Ravi Jagannathan

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

The authors show that the public market equivalent approach is equivalent to assessing the performance of private equity (PE) investments using Rubinstein’s dynamic version of the CAPM. They developed two insights: (1) one need not compute betas of PE investments, and any changes in PE cash flow betas due to changes in financial leverage, operating leverage, or the nature of the business are automatically taken into account; (2) the public market index used in evaluations should be the one that best approximates the wealth portfolio of the investor considering the PE investment opportunity.
The authors show that the public market equivalent approach is equivalent to assessing the performance of private equity (PE) investments using Rubinstein’s dynamic version of the CAPM. They developed two insights: (1) one need not compute betas of PE investments, and any changes in PE cash flow betas due to changes in financial leverage, operating leverage, or the nature of the business are automatically taken into account; (2) the public market index used in evaluations should be the one that best approximates the wealth portfolio of the investor considering the PE investment opportunity.
LanguageEnglish
JournalFinancial Analysts Journal
Volume71
Issue number4
Pages43-50
ISSN0015-198X
DOIs
StatePublished - 2015

Cite this

@article{5d1d8fdd89b4405e8e0b388f4d924d52,
title = "The Public Market Equivalent and Private Equity Performance.",
abstract = "The authors show that the public market equivalent approach is equivalent to assessing the performance of private equity (PE) investments using Rubinstein’s dynamic version of the CAPM. They developed two insights: (1) one need not compute betas of PE investments, and any changes in PE cash flow betas due to changes in financial leverage, operating leverage, or the nature of the business are automatically taken into account; (2) the public market index used in evaluations should be the one that best approximates the wealth portfolio of the investor considering the PE investment opportunity.",
author = "Morten S{\o}rensen and Ravi Jagannathan",
year = "2015",
doi = "10.2469/faj.v71.n4.4",
language = "English",
volume = "71",
pages = "43--50",
journal = "Financial Analysts Journal",
issn = "0015-198X",
publisher = "C F A Institute",
number = "4",

}

The Public Market Equivalent and Private Equity Performance. / Sørensen, Morten; Jagannathan, Ravi.

In: Financial Analysts Journal, Vol. 71, No. 4, 2015, p. 43-50.

Research output: Contribution to journalJournal articleResearchpeer-review

TY - JOUR

T1 - The Public Market Equivalent and Private Equity Performance.

AU - Sørensen,Morten

AU - Jagannathan,Ravi

PY - 2015

Y1 - 2015

N2 - The authors show that the public market equivalent approach is equivalent to assessing the performance of private equity (PE) investments using Rubinstein’s dynamic version of the CAPM. They developed two insights: (1) one need not compute betas of PE investments, and any changes in PE cash flow betas due to changes in financial leverage, operating leverage, or the nature of the business are automatically taken into account; (2) the public market index used in evaluations should be the one that best approximates the wealth portfolio of the investor considering the PE investment opportunity.

AB - The authors show that the public market equivalent approach is equivalent to assessing the performance of private equity (PE) investments using Rubinstein’s dynamic version of the CAPM. They developed two insights: (1) one need not compute betas of PE investments, and any changes in PE cash flow betas due to changes in financial leverage, operating leverage, or the nature of the business are automatically taken into account; (2) the public market index used in evaluations should be the one that best approximates the wealth portfolio of the investor considering the PE investment opportunity.

U2 - 10.2469/faj.v71.n4.4

DO - 10.2469/faj.v71.n4.4

M3 - Journal article

VL - 71

SP - 43

EP - 50

JO - Financial Analysts Journal

T2 - Financial Analysts Journal

JF - Financial Analysts Journal

SN - 0015-198X

IS - 4

ER -