EIF Staff Paper published by EVCA: "The Risk Profiles of Private Equity"

The European Venture Capital Association has recently published the above study by EIF staff Dr. Tom Weidig and Pierre-Yves Mathonet.

Abstract

In the study, the authors introduce the different investment vehicles, referring mainly to VC, but also to buyout (BO) whenever possible. Discussion is based on published research articles, the authors' own research, and the Thomson Venture Economics (VE) database. An analysis is conducted of the risk profiles in detail, also in terms of the risk-return ratios of each vehicle. The authors conclude that there is a clear diversification benefit for funds, funds-of-funds, and portfolios of funds and direct investments. For example, the probability of any loss is small for a VC fund-of-funds, whereas the probability of a total loss of capital in a direct VC investment is about 30%. The study also makes a mention of the allocation of economic capital to cover for unexpected losses, especially with respect to Basel II regulations.

• Article written in English by Dr. Tom Weidig (QuantExperts), consultant to the EIF, and Pierre-Yves Mathonet.
• Publication: Social Sciences Research Network; EVCA - 01/2004

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