A Recommitment Strategy for Long Term Private Equity Fund Investors

Gerben de Zwart, Brian Frieser and Dick van Dijk

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: This paper develops a reinvestment strategy for private equity which aims to keep its portfolio weight equal to a desired strategic allocation, while taking into account the illiquid nature of private equity. Historical simulations (1980-2005) show that our dynamic strategy is capable of maintaining a stable investment level that is close to the target. This does not only hold for unrestricted portfolios, but also for investments limited to buyout or venture capital, a specific region, or management experience. This finding is of great importance for investors, because private equity funds have a finite lifetime and uncertain cash flows.

Keywords: overcommitment; private equity funds; recommitment strategy; strategic asset allocation (search for similar items in EconPapers)
JEL-codes: G12 G3 M (search for similar items in EconPapers)
Date: 2007-12-24
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