A Simple Utility Approach to Private Equity Sales

Robert Dubil
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Robert Dubil: San Jose State University

Journal of Entrepreneurial Finance, 2003, vol. 8, issue 1, 103-110

Abstract: The paper examines the liquidity risk of a private equity firm that decides to dispose of a large holding in its portfolio. As the sale takes time, it requires a careful balancing act of the exposure to the fluctuations in the market value of the investment against the large sale-induced price depression. A mean-standard deviation utility framework is an appealing decision tool for optimizing protracted asset dispositions. The firm maximizes the expected profit from the sale strategy net of the price concession minus a penalty function for exposure to the price risk, with the penalty weight related to a loss confidence interval.

Keywords: Private Equity; Utility; Venture Capital (search for similar items in EconPapers)
JEL-codes: D92 G32 (search for similar items in EconPapers)
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:pep:journl:v:8:y:2003:i:1:p:103-110

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