Private Equity Indices Based on Secondary Market Transactions

Brian Boyer, Taylor D. Nadauld, Keith P. Vorkink, Michael S. Weisbach

NBER Working Paper No. 25207
Issued in November 2018
NBER Program(s):Asset Pricing, Corporate Finance

Measuring the performance of private equity investments (buyout and venture) has historically only been possible over long horizons because the IRR on a fund is only observable following the fund’s final distribution. We propose a new approach to evaluating performance using actual prices paid for limited partner shares of funds in secondary markets. We construct indices of buyout and venture capital performance using a proprietary database of secondary market prices between 2006 and 2017. These transaction-based indices exhibit significantly higher betas and volatilities, and lower alphas than NAV-based indices built from Preqin and obtained from Burgiss. There are a number of potential uses for these indices. In particular, they provide a way to track the returns of the buyout and venture capital sectors on a quarter-to-quarter basis and to value illiquid stakes in funds.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w25207