Idiosyncratic Risk in Private Equity

Elisabeth Mueller

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Abstract: Owners of private firms are typically exposed to idiosyncratic risk because they often invest a high share of their net worth in just one firm. One would expect that these owners require a compensation for the risk exposure in the form of higher returns to private equity. Empirical work has indeed shown that there is a positive relationship between share of net worth invested and realized returns to private equity. However, return data covering the last two decades do not show a consistently higher average return to private equity compared to public equity. Hence, there does not seem to be a systematic compensation for the exposure to idiosyncratic risk in private equity.

Date: 2024-08-05
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Published in Douglas Cumming (ed.); Benjamin Hammer (ed.). The Palgrave Encyclopedia of Private Equity, Springer International Publishing, pp.1-4, 2024, ⟨10.1007/978-3-030-38738-9_186-1⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04840932

DOI: 10.1007/978-3-030-38738-9_186-1

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