Come to the private side: The returns and risks of private equity funds and funds of funds

Abstract

In this thesis I examine the returns that private equity and venture capital funds have yielded to investor between 1984 and 2019 with focus on returns between 2010 and 2019. I also examine the returns and risks of private equity funds of funds and their risk-return profile. To determine the returns, I use the IRR and TVPI of each vintage year. In addition, I discuss the public market equivalent (PME) approach to returns comparisons and provide a rough estimate of the PME for PE and VC funds. To determine the risks, I use standard deviation of IRRs as a measure of risk. I find that private equity and venture capital funds have yielded excess returns compared to the public market. Secondly, I observe that this is the case also for private equity funds of funds. Thirdly, I find that funds of funds provide lower risk and are only partially exposed to same return factors as individual private equity funds.