The liquidity cost of private equity investments: Evidence from secondary market transactions

Taylor D. Nadauld, Berk A. Sensoy, Keith Vorkink and Michael Weisbach

Journal of Financial Economics, 2019, vol. 132, issue 3, 158-181

Abstract: This paper uses proprietary data from a leading intermediary to explain the magnitude and determinants of transaction costs in the secondary market for private equity stakes. Most transactions occur at a discount to net asset value. Buyers average an annualized public market equivalent of 1.023 compared with 0.976 for sellers, implying that buyers outperform sellers by a market-adjusted 5 percentage points annually. Both the cross-sectional pattern of transaction costs and the identity of sellers and buyers suggest that the market is one in which relatively flexible buyers earn returns by supplying liquidity to investors wishing to exit.

Keywords: Private equity; Secondary market for private equity funds; Liquidity; Transaction costs (search for similar items in EconPapers)
JEL-codes: G11 G23 G24 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (17)

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Related works:
Working Paper: The Liquidity Cost of Private Equity Investments: Evidence from Secondary Market Transactions (2016)
Working Paper: The Liquidity Cost of Private Equity Investments: Evidence from Secondary Market Transactions (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:132:y:2019:i:3:p:158-181

DOI: 10.1016/j.jfineco.2018.11.007

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