Real Options

Thomas Meyer
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Thomas Meyer: LDS Partners

Chapter Chapter 22 in Private Equity Unchained, 2014, pp 235-248 from Palgrave Macmillan

Abstract: Abstract In practice, investment decisions in private equity are irreversible in the sense that mistakes cannot be corrected through trading, at least not at an acceptable cost. Consequently, LPs need to be able to select or be in the position to alter their investments in funds postcommitment. Without the ability to respond in a meaningful way to a new development, the situation becomes a bet. This contrasts with ‘real options’ that can give investors the ability to respond to insights gained over time as a situation gradually becomes clearer. When primarily relying on selection skills, investors in funds are essentially taking a bet, hoping that calculated risks are taken and assuming the outcome is not dependent on pure chance.

Keywords: Real Option; Private Equity; Fund Manager; Portfolio Company; Private Equity Fund (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-28682-6_22

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DOI: 10.1057/9781137286826_22

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