As many limited partners and academic researchers of private equity know, good data is hard to find. Data is hard to acquire and exceptionally difficult to analyze, utilize and share for the public good. Many private equity firms resist providing fund and deal-level performance data contending “it is crucial to keep information secret for competitive reasons,” the Wall Street Journal reports.
Nevertheless, Dr. Oliver Gottschalg, Founder and Head of Research at PERACS, together with Dr. Bernd Kreuter, Managing Partner at Palladio Partners were recently granted access to data from the Association Française des Investisseurs Pour La Croissance (“AFIC”) consisting of over 3,400 deals and over €10 billion in equity investments made in France. The rich data set allowed the researchers to risk assessment of private equity investing on a new level of granularity.
Together, Gottschalg and Kreuter measured the capital loss risk to private equity investors by developing a new, bottom-up value-at-risk (“VaR”) model that considers the evolution of portfolio company net asset values, deal-level cash flows, and utilizes a Monte Carlo simulation method of generating numerous, repeated random samplings.
The study found a substantially lower-than-expected level of value-at-risk for private equity.
Take a look at the video below to see Dr. Gottschalg discussing his methodology via a SuperReturn Global Series webcast presentation.