Discount Rate Risk in Private Equity: Evidence from Secondary Market Transactions

Brian Boyer, Taylor D. Nadauld, Keith P. Vorkink and Michael Weisbach

No 28691, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Standard measures of private equity performance based on cash flows overlook discount rate risk. An index constructed from prices paid in secondary market transactions indicates that private equity discount rates vary considerably. While the standard alpha for our index is zero, measures of performance based on cash flow data for funds in our index are large and positive. To illustrate that results are not driven by idiosyncrasies of private equity secondary markets, we obtain similar results using cash flows and returns of synthetic funds that invest in small cap stocks. Ignoring variation in PE discount rates can lead to a misallocation of capital.

JEL-codes: G11 G23 G24 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-cfn
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Published as BRIAN H. BOYER & TAYLOR D. NADAULD & KEITH P. VORKINK & MICHAEL S. WEISBACH, 2023. "Discount‐Rate Risk in Private Equity: Evidence from Secondary Market Transactions," The Journal of Finance, vol 78(2), pages 835-885.

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Journal Article: Discount‐Rate Risk in Private Equity: Evidence from Secondary Market Transactions (2023)
Working Paper: Discount Rate Risk in Private Equity: Evidence from Secondary Market Transactions (2021)
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