Risk-Adjusted Returns of Private Equity Funds: A New Approach

Arthur Korteweg and Stefan Nagel

The Review of Financial Studies, 2025, vol. 38, issue 9, 2557-2601

Abstract: This paper introduces a new metric, α, to benchmark the performance of individual private equity funds. Our metric is substantially less sensitive to noise in fund cash flows compared to the popular public market equivalent (PME) and its generalization (GPME), while having the same aggregate pricing implications as GPME. For a large data set of fund cash flows, α estimates have much lower standard deviation across funds than does (G)PME. For buyout funds, PME and α are close, but deviate in certain subsamples. Using α increases power in regressions involving fund performance and improves performance predictability of future funds.

Date: 2025
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