Following their June 2010 report on the different components of buyout funds' returns, a group of academics from HEC and LBS have just completed a follow-on study on whether it is possible to emulate the risk-return profile of buyout funds with comparable public market investments, again using the sample provided by a major private equity fund of funds, in collaboration with the BVCA.
This study replicates the investment approach of the buyout funds by investing in public market indices, timing precisely 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. The report is able to show that the mimicked public market investments fail to generate the same level of performance as the buyout funds in the sample. The buyout funds achieve performance 11.5% higher than the mimicked public market investments - a gap that is called 'performance delta'.
February 2011
Download: Replicating the Investment Strategy of Buyout Funds Based in the UK with Public Market Investments
