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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

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

More from the Author

    • 2019
    • Faculty Research

    Do Banks Have an Edge?

    By: Juliane Begenau and Erik Stafford
    • Journal of Finance

    The Cost of Capital for Alternative Investments

    By: Jakub W. Jurek and Erik Stafford
    • October 2014
    • Faculty Research

    Grantham, Mayo, and Van Otterloo, 2012: Estimating the Equity Risk Premium (Abridged) Spreadsheet Supplement

    By: Samuel Gregory Hanson, Erik Stafford and Luis M. Viceira
More from the Author
  • Do Banks Have an Edge? By: Juliane Begenau and Erik Stafford
  • The Cost of Capital for Alternative Investments By: Jakub W. Jurek and Erik Stafford
  • Grantham, Mayo, and Van Otterloo, 2012: Estimating the Equity Risk Premium (Abridged) Spreadsheet Supplement By: Samuel Gregory Hanson, Erik Stafford and Luis M. Viceira
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