Private equity performance and liquidity risk pdf

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private equity performance and liquidity risk pdf

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Private Debt: Focus on Liquidity as Sector Scales New Heights

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Key question: How much diversification benefits does PE offer? To partially answer, we need to assess its exposure to known risk factors, and in particular to a newly documented one: liquidity risk. We find that exposure to liquidity risk is sizeable and after accounting for the four most common risk factors including liquidity risk , there is no alpha. Plus understanding drivers of performance cross-sectional and time-series is important. Risk assessment is relevant for bank regulation e. Basel capital requirements and institutional risk management.

Identifying Liquidity Risk in Fixed-Income Mutual Funds: A Quantitative Approach

The quantitative research and approach demonstrated in this white paper, helps to provide a useful and pragmatic framework for investment practitioners to screen for liquidity risks when selecting new fixed-income products, as well as when conducting ongoing monitoring of their current bond funds. While investors — especially those in categories such as multi-sector and enhanced core bond funds — are typically aware that actively managed products may invest in illiquid assets to seek higher returns especially during periods of historically low yields , they may not always be aware of the specific risks that may be present in their investments, nor how these risks might be changing quickly over time. The quantitative approach demonstrated in this paper provides a useful and pragmatic framework for investment practitioners to screen for potential concerns when selecting new products, as well as when conducting ongoing monitoring of their portfolio holdings. When analyzing actively managed funds to get a clear picture of liquidity exposure, qualitative due diligence cannot usually detect rapid allocation changes, nor deconstruct a maze of complex holdings and derivatives to fully assess risk. It is here that analysts would normally turn to quantitative analysis, but many fixed-income specialists often consider such quant measures to be better suited to equities. In this paper, we will demonstrate how quick, efficient and easily understood quantitative analysis can provide critical insights for investors and regulators, helping them to better assess ongoing risks in fixed-income products.

In the immediate aftermath of the financial crisis, debt was off limits for many investors but it is now the private market asset class of choice. Involvement in private debt has grown especially rapidly among sovereign wealth funds SWFs and public pension funds. Average allocation to private debt by SWFs has grown from 1. Global public investors, including central banks, SWFs and public pension funds, are a powerful force in global capital markets. Investor allocations across all private markets are growing and private debt growth has been significant, despite tightening spreads.

Risk and Return Characteristics of Listed Private Equity

From to mid, liquidity in the financial markets was high and private equity PE firms made large distributions to their investors, who reinvested these distributions into new PE funds. With the onset of the financial crisis of —, PE fund managers and investors faced severe liquidity problems. This chapter examines liquidity issues in PE within the context of the financial crisis.

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A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading , portfolio -construction and risk management techniques in an attempt to improve performance, such as short selling , leverage , and derivatives. Hedge funds are regarded as alternative investments. Their ability to make more extensive use of leverage and more complex investment techniques distinguishes them from regulated investment funds available to the retail market, such as mutual funds and ETFs.

Private Debt: Focus on Liquidity as Sector Scales New Heights

In recent years, international bodies have strengthened the overall framework for liquidity risk management tools, while giving the national authorities broad discretion to select the tools that are made available to operators. In the AMF authorised the use of redemption gates and also published an instructional guide on stress tests. In , it is clarifying the framework for certain tools. The AMF amends its General Regulation and its policy to clarify the framework applicable to three liquidity risk management tools. The tools concerned by these modifications are as follows:. Skip to main content.

The final IOSCO recommendations replace the existing principles of March and include new recommendations on contingency planning. They also consider additional liquidity management tools, to the extent allowed by local law and regulation, and consistent with the fund's investment strategy, the profile of the investor base and the fair treatment of investors. The recommendations are substantially the same as those in the consultation document see this article in our July newsletter. The proposed principles-based approach has been adopted and most of the recommendations are aligned with existing European standards and industry best practices. However, fund managers should note the need for full documentation of decisions in both the design and operational phases.


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  • PDF icon Download This Paper. Open PDF in Browser. Add Paper to My Library Keywords: Private equity, Liquidity risk, Cost of capital. Amelia W. - 30.05.2021 at 20:30