Up Next

ki-logo-white
Market-Based Solutions to Vital Economic Issues

SEARCH

Kenan Institute 2024 Grand Challenge: Business Resilience
ki-logo-white
Market-Based Solutions to Vital Economic Issues
Research
Apr 3, 2019

Private Equity Net Asset Values and Future Cash Flows

Abstract

This study analyzes whether fair value estimates of fund net asset values (NAVs) produced by private equity managers are accurate and unbiased predictors of future discounted cash flows (DCF). We exploit the fact that private equity funds have finite lives to compare reported NAVs to DCFs based on realized cash flows for 384 venture capital (VC) funds and 195 buyout funds spanning 1988-2016. Findings reveal that Buyout funds’ NAVs display little systematic bias, but VC funds’ NAVs are relatively aggressively biased compared to Buyout funds, especially since 2000. Accuracy is worse in the first half of the sample period even though NAV estimates generally are more conservative. Overall, the results reveal significant differences in the association between NAVs and DCFs for Buyout versus VC funds, which is particularly important for private equity fund investors in their consideration of the relevance and reliability of NAV estimates provided by fund managers.


View Publication on UNC Library View Publication on Journal Site

You may also be interested in: