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  • January 2022
  • Article
  • Review of Financial Studies

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

By: Erik Stafford
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Abstract

The contributions of asset selection and incremental leverage to buyout investment performance are more important than typically assumed or estimated to be. Buyout funds select small firms with distinct value characteristics. Public equities with these characteristics have high risk-adjusted returns relative to common factors. Adding incremental leverage to a publicly traded stock portfolio increases both risks and mean returns in this sample. Direct investments in private equity funds earn lower mean returns than a replicating strategy designed to mimic these key economic features of their investment process with public equities and brokerage loans. (JEL G11, G12, G23, G32)

Keywords

Replicating Portfolio; Private Equity; Investment Portfolio

Citation

Stafford, Erik. "Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting." Review of Financial Studies 35, no. 1 (January 2022): 299–342.
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About The Author

Erik Stafford

Finance
→More Publications

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    First Citizens’ Acquisition of SVB

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    Carnival Corp: Cruising In the Time of Covid

    By: Erik Stafford
    • January 2024
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    Leverage and Liquidity at Silicon Valley Bank

    By: Samuel Antill and Erik Stafford
More from the Author
  • First Citizens’ Acquisition of SVB By: Samuel Antill, Marco Sammon and Erik Stafford
  • Carnival Corp: Cruising In the Time of Covid By: Erik Stafford
  • Leverage and Liquidity at Silicon Valley Bank By: Samuel Antill and Erik Stafford
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