Private Equity - A Value Adding Asset In Portfolios? A Danish Perspective

Sonny Berggreen Madsen & Jacob Riiser de Lichtenberg

Student thesis: Master thesis

Abstract

The thesis evaluates the effects of adding private equity investments to well diversified portfolios (such as a pension fund’s portfolio) as well as evaluating private equity investments’ effects on an average Danish saver’s portfolio. We use the performance of listed private equity vehicles as a proxy for PE investments and optimize the portfolio using Markowitz’s mean-variance method. We find that it is questionable that the addition of PE investments add any value to both well diversified portfolios as well as to the average Danish saver. Only when we added a buyout focused private equity asset to the well diversified portfolios and at the same time restricted the investor from shorting and gearing, we found some statistically significant performance improvements. In general, the findings contradict the recent years development among the Danish pension funds, who all are increasing their exposure towards private equity.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2016
Number of pages139