Investigating the risks associated with investing in private equity funds
Keywords:
Venture capital, leveraged buyout, risk management, financingAbstract
Private equity and its types are one of the new and developed methods of the current era. Various financial and economic systems have been able to improve economic indicators by using these financial institutions. Increasing economic growth, increasing employment, using the production capacities of companies and increasing exports are examples of the most important macroeconomic achievements of using private investment financing institutions. Private equity institutions, which include venture capital investment, growth capital investment, leveraged buyout investment, and investment in distressed companies, can help countries' economies get out of recession. Private equity funds are a popular investment vehicle that offers high return potential but also comes with high risk. The purpose of this review is to identify and analyze the risks associated with investing in private equity funds with a special focus on their management methods.
Downloads
References
Baker, H. K., Filbeck, G., & Kiymaz, H. (Eds.). (2015). Private equity: opportunities and risks.
Oxford University Press.
Barber, B. M., & Yasuda, A. (2017). Interim fund performance and fundraising in private equity. Journal of Financial Economics, 124(1), 172-194.
Bartzokas, A., & Mani, S. (Eds.). (2004). Financial systems, corporate investment in innovation, and venture capital. Edward Elgar Publishing.
Brown, G. W., Gredil, O. R., & Kaplan, S. N. (2019). Do private equity funds manipulate reported returns? Journal of Financial Economics, 132(2), 267-297
Brown, G. W., Gredil, O., & Kaplan, S. N. (2013). Do private equity funds game returns? SSRN Working Paper# 2271690.
Brunnermeier, M. K., & Pedersen, L. H. (2009). Market liquidity and funding liquidity. The review of financial studies, 22(6), 2201-2238.
Buchner, A. (2017). Risk management for private equity funds. Journal of Risk, 19(6).
Chen, L. H., Dyl, E. A., Jiang, G. J., & Juneja, J. A. (2015). Risk, illiquidity, or marketability: What matters for the discounts on private equity placements? Journal of banking & finance, 57, 41-50.
Crain, N. (2013). Career concerns and venture capital. WP University of Texas at Austin.
Driessen, J., Lin, T. C., & Phalippou, L. (2012). A new method to estimate risk and return of nontraded assets from cash flows: The case of private equity funds. Journal of Financial and Quantitative Analysis, 47(3), 511-535.
Duffner, S (2003). Principal-agent problems in venture finance. Working Paper, 11/03. University of Basel
Florida, R. L., & Kenney, M. (1988). Venture capital-financed innovation and technological change in the USA. Research Policy, 17(3), 119-137.
Franzoni, F., Nowak, E., & Phalippou, L. (2012). Private equity performance and liquidity risk. The Journal of Finance, 67(6), 2341-2373.
Gompers, P. A., Kaplan, S. N., & Mukharlyamov, V. (2022). Private equity and COVID-19. Journal of Financial Intermediation, 51, 100968.
Gompers, P.A., 2022. Optimal investment, monitoring, and the staging of venture capital. In Venture Capital (pp. 285-313). Routledge.
Gompers, P., & Lerner, J. (1996). The use of covenants: An empirical analysis of venture partnership agreements. The Journal of Law and Economics, 39(2), 463-498.
Harris, R. S., Jenkinson, T., & Kaplan, S. N. (2014). Private equity performance: What do we know? The Journal of Finance, 69(5), 1851-1882.
Indahl, R., & Jacobsen, H. G. (2019). Private equity 4.0: Using ESG to create more value with less risk. Journal of Applied Corporate Finance, 31(2), 34-41.
Jenkinson, T., Sousa, M., & Stucke, R. (2013). How fair are the valuations of private equity funds? Available at SSRN 2229547.
Korteweg, A. (2019). Risk adjustment in private equity returns. Annual Review of Financial Economics, 11, 131-152.
Koryak, O., & Smolarski, J. (2008). Perception of risk by venture capital and private equity firms: A European perspective. The Journal of Private Equity, 30-42.
Kut, C., Pramborg, B., & Smolarski, J. (2006). Risk management in European private equity funds: survey evidence. The Journal of Private Equity, 42-54.
Kut, C., & Smolarski, J. (2006). Risk management in private equity funds: a comparative study of Indian and Franco-German funds. Journal of Developmental Entrepreneurship, 11(01), 35-55.
Lerner, J. (2022). The syndication of venture capital investments. In Venture Capital (pp. 207¬218). Routledge.
Liang, P., & Yu, H. (2011). Towards a Global Model of Venture Capital. Advanced Materials Research, 271, 780-784.
Ljungqvist, A., & Richardson, M. (2003). The investment behavior of private equity fund managers.
Nadauld, T. D., Sensoy, B. A., Vorkink, K., & Weisbach, M. S. (2019). The liquidity cost of private equity investments: Evidence from secondary market transactions. Journal of Financial Economics, 132(3), 158-181.
Phalippou, L., & Gottschalg, O. (2009). The performance of private equity funds. The Review of Financial Studies, 22(4), 1747-1776.
Proksch, D., Stranz, W., Pinkwart, A., & Schefczyk, M. (2016). Risk management in the venture capital industry: Managing risk in portfolio companies. The Journal of Entrepreneurial Finance (JEF), 18(2), 1-33.
Reid, G. C., G Terry, N., & Smith, J. A. (1997). Risk management in venture capital investor investee relations. The European Journal of Finance, 3(1), 27-47.
Robinson, D. T., & Sensoy, B. A. (2013). Do private equity fund managers earn their fees? Compensation, ownership, and cash flow performance. The Review of Financial Studies, 26(11), 2760-2797.
Weidig, T. (2002). Risk model for venture capital funds. Available at SSRN 365881.
Zeisberger, C., Prahl, M., & White, B. (2017). Mastering private equity set. John Wiley & Sons.
Zhang, X. B., & Zhang, C. (2009, July). Study on private equity investment risk avoiding based on principle-agent. In 2009 IITA International Conference on Services Science, Management and Engineering (pp. 388-391). IEEE.
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Amir Mohammad Shahbalaei Kashan
This work is licensed under a Creative Commons Attribution 4.0 International License.
Publisher
