Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting
Year: 2021
Type: article
Abstract: The contributions of asset selection and incremental leverage to buyout investment performance are more important than typically assumed or estimated to be. Buyout funds select small firms with distinct value characteristics. Public equities with these characteristics have high risk-adjusted returns relative to common factors. Adding incremental leverage to a publicly traded stock portfolio increases both risks and mean returns in this sample. Direct investments in private equity funds earn lower mean returns than a replicating strategy designed to mimic these key economic features of their investment process with public equities and brokerage loans.
Source: Review of Financial Studies
DOI: 10.1093/rfs/hhab020
Author: Erik Stafford
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3131313047