Listed Private Equity: A Study of Discount/Premium to NAV Characteristics

Sammanfattning: Combining findings from earlier research on the closed-end fund puzzle with research on private equity characteristics, we study the discount/premium properties of listed private equity funds. The sample includes 13 buyout funds and 144 venture capital funds, during the period 1988-2008. The mean discount is 12% for the buyout funds and 11% for the venture capital funds. We find that managerial ability, measured through the proxy historical net asset value returns, and liquidity are positively related to premium. We find support for the investor sentiment theory measured with the proxies net retail fund flows, peer premium and ftse small cap returns. Buyout and venture capital funds do not receive a higher premium for holding illiquid assets. The credit spread is negatively related to premium for buyout funds. Neither fund type show any performance persistency in net asset value returns. Lastly we see that the premium has no ability to predict future NAV returns, whereas it can predict future total stock returns due to the mean reverting pattern of discounts/premiums.