The Pricing of Liquidity Risk in Buyout Funds – A Public Market Perspective

Matthias Huss () and Heinz Zimmermann ()
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Matthias Huss: University of Basel
Heinz Zimmermann: University of Basel

Schmalenbach Business Review, 2018, vol. 70, issue 3, No 4, 285-312

Abstract: Abstract This paper analyzes the structure and pricing of liquidity risk for international listed buyout funds. We use a time-series framework for our tests which allows us to discriminate between the exposure of buyout funds to two types of liquidity: Market and funding liquidity. We find that the innovation in funding liquidity is a priced factor for buyout funds, while changes in market liquidity are not. Investors require a risk premium of approximately 3% to 7% per annum in order to be compensated for bearing that risk. Controlling for funding liquidity risk decreases the alpha of the asset class to zero.

Keywords: Private equity; Buyout funds; Liquidity risk; Funding risk; Systematic risk (search for similar items in EconPapers)
JEL-codes: C32 G12 G23 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s41464-018-0050-6

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