Research

Modelling listed Private Equity in South Africa

Posted on | by Hammad

This paper uses advanced econometric methods to explore the statistical properties, volatility dynamics, and macroeconomic determinants of Listed Private Equity (LPE) investments in South Africa from 2010 to 2023. The key objectives include testing for non-normality in LPE returns and assessing volatility clustering. By employing GARCH-family models, the study effectively captures asymmetric and long-memory effects in LPE returns. A VAR model combined with Impulse Response Functions quantifies the impact of macroeconomic shocks, revealing that inflation imposes a significant and sustained adverse effect on LPE returns. In contrast, GDP growth exerts a weaker, short-lived positive influence. The findings also highlight the dynamic Relationship between corporate strategies and market volatility, showcasing how firms adapt to and influence volatility through diversification, hedging, and sectoral realignment. These results are consistent with contemporary theories on strategic responses to volatility (Jiang et al., 2021). Furthermore, the DCC MGARCH results suggest minimal volatility spillovers within the South African LPE market, indicating reduced systemic risks and opportunities for adequate portfolio diversification. The study provides a framework to enhance risk management and informed decision-making within South Africa’s LPE market. Future research should extend these insights by investigating cross-border spillover effects and examining how regulatory frameworks can stabilise the LPE sector.

Authors: Chricencia Makanyara MURAPE, Raphael Tabani MPOFU
Publication date: 31 December 2024
Published in: Prizren Social Science Journal
Volume/ Ausgabe: Vol. 9, Issue No. 1; 2025
Source download link: https://www.lpx-group.com/wp-content/media%20posts/2025_Murape_Mpofu.pdf

Empirical Analysis of PE, Listed PE and Public Equity

Posted on | by Hammad

It is not a secret that the world of Private Equity is growing year by year, with an immense upwards trend and that the willingness of understanding how Private Equity as an alternative capital raising strategy can be used by companies which do not want to go public and get financed by Public Equity. The underlying paper investigates the world of Private Equity, Listed Private Equity and Public Equity. Regarding transparency of data, the comparability of Public Equity to Listed Private Equity provides way better results than comparing Public Equity to Private Equity. Due to the listing of the firms, the disclosure requirements need to be fulfilled. The GLPE Index illustrates and underlines the effectiveness of Listed Private Equity as a financing source. The GLPE Index contains 40 to 75 listed Private Equity firms which mostly invest Private Equity in firms that are not listed. However – The top ten constituents of this index show their diversification considering the companies they have invested in and their performance, the countries in which the Headquarter are located and the performance of these funds. One can see clearly that 2021 was an extra ordinary year for all of them. They achieved returns and performance better than indices like the MSCI World and S&P 500.

Authors: Ernst Fahling, Celina Fünfgeld andRobert Kelm
Publication date: 26 March 2023
Published in: International Journal of Financial Research
Volume/ Ausgabe: Vol. 14, No. 2; 2023
Source download link: https://www.lpx-group.com/wp-content/media%20posts/2023_Fahling_et_al.pdf

Tail risks and private equity performance

Posted on | by Robin Jakob

We examine the drivers of private equity in response to the fully exogenous Covid-19 shock, employing listed private equity as a proxy for traditional non-listed private equity. This approach enables us to reliably measure firm characteristics and performance in real-time. Listed private equity firms, on average, underperformed significantly during the crisis, with a performance drop ranging from 9.2 % to 43.6 %, depending on the model used. However, there is substantial cross-sectional variation driven by unique firm-level attributes including access to capital, liquidity, transparency, and ownership structure. Listed private equity with better access to capital and higher transparency shows resilience during the crisis, while higher illiquidity and opacity exacerbate the negative effects. This study offers early evidence on Covid-19′s impact on private equity firms, highlighting value drivers and performance dynamics of this alternative asset class during a period of extreme tail risk.

Authors: Hrvoje Kurtović / Garen Markarian
Publication date: 1 December 2023
Published in: Journal of Empirical Finance
Volume/ Ausgabe: Volume 75
Source download link: https://www.sciencedirect.com/science/article/pii/S092753982300124X

Market-based private equity returns

Posted on | by Robin Jakob

Using the universe of business development companies (BDCs), a unique publicly traded segment of U.S. Private Equity (PE), for the period 1998–2017, we provide the first in-depth examination of their performance and risk-adjusted characteristics and compare our results to contrasting evidence derived from recently wwweloped time series proxies for unlisted PE returns. BDCs exhibit zero alpha, beta of one, and significant exposure to SMB, HML, and CMA factors of 0.5, 0.7, and -0.3, respectively. BDC performance and market beta are sensitive to fund size and leverage. We provide evidence that BDC returns capture both the asset selection and PE ownership elements of the unlisted PE investment strategy. Finally, an event study analysis shows that NAV disclosures become informative only after the adoption of the Statement of Financial Accounting Standards 157 (SFAS 157). We posit that BDCs provide a readily available market-based PE benchmark for use by regulators, market participants, and academics.

Authors: Theodosis L. Kallenos / George P. Nishiotis
Publication date: 6 November 2023
Published in: Journal of Banking & Finance
Volume/ Ausgabe: Volume 157
Source download link: https://www.sciencedirect.com/science/article/abs/pii/S0378426623002339

The Risk and Performance of Listed Private Equity

Posted on | by Robin Jakob

Private equity (PE) risk and performance is a black box for investors, as information is quasi-private during a fund’s life. To overcome this issue, the authors use the universe of listed PEs (LPEs) in US exchanges, which permits the measurement of financial fundamen¬tals based on audited quarterly reports, and the observation of share price performance and volatility on a real-time basis. They first show that LPE performance and valuations are highly correlated to that of unlisted PEs, and hence are a good proxy. LPEs constantly exhibit leverage double that of the broader market while showing no distinctive share price performance. Controlling for standard determinants of returns, LPE firms do not outperform market benchmarks. Using COVID-19 as an exogenous increase in tail risk, PE firms grossly underperformed as markets penalized the riskiness and lack of transparency inherent in PE investments. The problems are likely greater in privately held PEs, where performance is self-reported, not audited, and illiquidity periods last up to 10 or 12 years.

Authors: Hrvoje Kurtovic / Garen Markarian / Patrick Breuer
Publication date: 22 May 2023
Published in: The Journal of Alternative Investments
Volume/ Ausgabe: Volume 26, Issue 1
Source download link: https://www.pm-research.com/content/iijaltinv/early/2023/05/21/jai20231191

Does the day of week effect exist in other asset classes?

Posted on | by Robin Jakob

Purpose: This study aims to investigate the day-of-the-week (DoW) effect in globally listed private equity (LPE) markets using daily data covering the period 2004–2021. Design/methodology /approach: To investigate the existence of the DoW effect in globally LPE markets, ordinary least squares regression, generalised autoregressive conditional heteroscedasticity (GARCH) regression and robust regressions are used. In addition, robustness audits are conducted by subdividing the sampling period into two sub-periods: pre-financial and post-financial crisis. Findings: Limited statistically significant evidence is found for the DoW effect. By taking time-varying volatility into account, a statistically significant DoW effect can be observed, indicating that the DoW effect is driven by time-varying volatility. Economic significance is captured through visual inspection of average daily returns, which illustrate that Monday returns are lower than the other weekdays. Practical implications: The results have important implications on whether to adopt a DoW strategy for investors in LPE. The findings show that higher returns on selected days of the week for certain indices are possible.

Authors: Marcel Steinborn
Publication date: 26 April 2023
Published in: Studies in Economics and Finance, Emerald Group Publishing Limited
Volume/ Ausgabe:Volume 41, Issue 1
Source download link: https://www.emerald.com/insight/content/doi/10.1108/SEF-12-2021-0517/full/html