The Private Capital Alpha

Gregory W. Brown, Andrei S. Goncalves and Wendy Hu
Additional contact information
Gregory W. Brown: U of North Carolina at Chapel Hill
Andrei S. Goncalves: Ohio State U
Wendy Hu: MSCI Inc

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: The alpha of an investment reflects its ability to increase the Sharpe ratio of a benchmark portfolio allocation based on tradable factors. We argue that, in the context of private capital, the usual approach to estimate alpha is misleading because it ignores the economic realities of investing in private markets. We then combine a large sample of 5,028 U.S. buyout, venture capital, and real estate funds from 1987 to 2022 to estimate the alphas of private capital asset classes under realistic simulations that account for the illiquidity and underdiversification in private markets as well as the portfolio allocation of typical limited partners. We find that buyout as an asset class provided a positive and statistically significant alpha during our sample period. In contrast, over our sample period, the venture capital alpha was large and positive but statistically unreliable whereas the real estate alpha was very close to zero.

JEL-codes: G10 G11 G12 G20 G23 G24 (search for similar items in EconPapers)
Date: 2024-09
New Economics Papers: this item is included in nep-fmk, nep-his and nep-inv
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ssrn.com/abstract=4967890

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2024-20

Access Statistics for this paper

More papers in Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().