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Publications
  • 2015
  • Working Paper
  • HBS Working Paper Series

Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting

By: Erik Stafford
  • Format:Print
  • | Language:English
  • | Pages:43
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Abstract

Private equity funds tend to select relatively small firms with low EBITDA multiples. Publicly traded equities with these characteristics have high risk-adjusted returns after controlling for common factors typically associated with value stocks. Hold-to-maturity accounting of portfolio net asset value eliminates the majority of measured risk. A passive portfolio of small, low EBITDA multiple stocks with modest amounts of leverage and hold-to-maturity accounting of net asset value produces an unconditional return distribution that is highly consistent with that of the pre-fee aggregate private equity index. The passive replicating strategy represents an economically large improvement in risk- and liquidity-adjusted returns over direct allocations to private equity funds, which charge average fees of 6% per year.

Keywords

Value Investing; Endowments; Investment Management; Asset Pricing; Private Equity; Investment; Management; United States

Citation

Stafford, Erik. "Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting." Harvard Business School Working Paper, No. 16-081, January 2016.
  • SSRN
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About The Author

Erik Stafford

Finance
→More Publications

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    Uniform Rate Setting and the Deposit Channel

    By: Juliane Begenau and Erik Stafford
    • March 2022
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    Exchanging Salary for Stock Options at a Startup

    By: Erik Stafford
More from the Author
  • Ocean Carriers (Abridged) Courseware By: Erik Stafford
  • Uniform Rate Setting and the Deposit Channel By: Juliane Begenau and Erik Stafford
  • Exchanging Salary for Stock Options at a Startup By: Erik Stafford
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