Market risk in private equities

In a world in which the valuations of private equities are seen to be opaque, our publication shows that private equities valuations are largely systematic, and most transaction prices can be explained by risk factor exposures and a valuation band.

The prominent role of systematic risk factors

The fact that that private equities valuations are largely systematic is crucially important for asset-level valuation and for benchmarking private asset funds at the portfolio level, which in turn has considerable implications for private assets in pensions and retail products: if market dynamics are tracked, then private assets can be repriced to reflect their fair market value. Moreover, implied discount rates (expected returns) for private equities transactions are estimated as 14% on average, which is roughly 6% points over expected public equity returns over time.

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