Skip to main content

Please enter a keyword and click the arrow to search the site

Replicating the investment strategy of buyout funds based in the United Kingdom with public-market investments

Journal

Journal of Alternative Investments

Subject

Accounting

Authors / Editors

Gottschalg O;Hadass L;Talmor E;Vasvari F

Publication Year

2013

Abstract

This article assesses whether it is possible to emulate the risk-return profile of buyout funds with comparable public market investments, and concludes that the buyout fund sample used demonstrates a “performance delta” over mimicked public market investment. The performance of a sample of buyout funds is replicated by mimicking the risk characteristics of their transactions with public index data by precisely timing the funds’ cash inflows and outflows net of fees and carry, matching the investments by industry sector, and taking into account the effect of additional leverage replicating the typical financial risk of buyout transactions. The authors measure returns of four investment strategies: the buy-and-hold return on the broad public stock market index; the return on the broad public stock market index based on matched investment timing; the return on the broad public stock market index based on matched investment timing and with additional superimposed financial leverage; and the return on industry-matched public stock market indexes based on matched investment timing and with additional superimposed financial leverage. The authors compare the returns on these four investment strategies with the actual IRR performance of the buyout funds in our sample, which invested predominantly across Europe and through both rising and falling markets. They select sample funds that were raised before 2001 to minimize the measurement error associated with residual NAVs. This research shows that the mimicked public market investments fail to generate the same level of performance as the buyout funds in our sample. The buyout funds achieve performance 11.51% higher than the mimicked public market investments—a gap the authors call “performance delta.”

Available on ECCH

No


Select up to 4 programmes to compare

Select one more to compare
×
subscribe_image_desktop 5949B9BFE33243D782D1C7A17E3345D0

Sign up to receive our latest news and business thinking direct to your inbox

×

Sign up to receive our latest course information and business thinking

Leave your details above if you would like to receive emails containing the latest thought leadership, invitations to events and news about courses that could enhance your career. If you would prefer not to receive our emails, you can still access the case study by clicking the button below. You can opt-out of receiving our emails at any time by visiting: https://london.edu/my-profile-preferences or by unsubscribing through the link provided in our emails. View our Privacy Policy for more information on your rights.