Can investors time their exposure to private equity? | Hacker News Reader

Can investors time their exposure to private equity?

nber.org

50 pointshhs10 comments

The short answer: Yes, investors can time their exposure to PE.

How? By doing so synthetically and/or indirectly: that is, by not investing in the private funds directly.

Rather, investors can determine whether they want to be long, short, or neutral private equity.

Next, an investor can select one or more publicly-traded 'private equity' firms to either invest in, short, or buy/sell options (calls or puts).

Here are just a few big name publicly traded firms:

Firm.......Ticker

Apollo....."APO"

Ares......."ARCC"

Gladstone.."GAIN"

KKR........"KCAP"

Blackstone.."BX"

There are more, especially of the hybrid (debt/mezz/equity) and Business Development Corp. (BDC)-type firms.

My initial thought is "yes, if you invest in the vintage immediately following a recession, let's see what the authors say". Then I am greeted with this fun paywall:

> You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

> You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

A subscription in the US, where my tax dollars fund this work, is $2675/year for the whole body of work, or $705/year for just this subject.[1] WTF!?

So I googled the title and it's available for free, legally on SSRN[2]. Maybe change the post url to that?

[1] https://www.nber.org/wpsubscribe.html

[2] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3241102

5 second search on Google Scholar returns the full PDF as the 1st result.

https://www.hhs.se/globalassets/swedish-house-of-finance/sem...

Link should be changed to full PDF

As someone on the other side... it sucks have to pay extra to publish in a journal supporting open access (if you don't do open access, publishing is cheaper)

Nonsense. You don't have to pay extra to post a copy on Medium, or one of the other 9 zillion free publishing platforms

That's actually really hard. Funds sometimes take 1+ years to raise, and then they can invest over a period of 2-4 years with capital committed for 10 years. Hard to time that

The full paper gives a another reason: if you decline to invest in one fund, the GP might not let you invest in the next one.

That is so hard to measure. Is undersizing a commitment to one vintage a black mark? I'm skeptical of that reasoning.

But I don't know you can time the recessions, think of everyone raising coming crisis distressed funds from 5 years ago, who ended up being forced to out the money to work in things like bank loans which now are getting wrecked.

And if you wait till after the carnage, by the time they can actually invest prices will have moved.

Red flag 1: Failure to cite relevant literature.

Red flag 2: Data vendor co-author.

1) There are equally credible claims that buyout funds are statistically indistinguishable from portfolios of highly leveraged small-caps + hold to maturity accounting [1].

2) PE studies based on the kind of data they used have major quality issues to overcome: a) NAV is mark to whatever your accountant that you pay says; b) GP's openly admit to using credit lines to time cashflows (and thereby manipulate IRR) [2].

A serious study based on LP nav/cashflow data needs to grapple with these issues. That means a well considered error-in-variables model. If memory serves me right, these authors basically just "back tested" a couple heuristic commitment strategies.

As a referee, I would raise these as serious questions about the work.

[1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2639647

[2] https://www.institutionalinvestor.com/article/b1ft12gp9lsv00...

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