NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Keith Vorkink

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Marriott School
Brigham Young University
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NBER Working Papers and Publications

July 2016The Liquidity Cost of Private Equity Investments: Evidence from Secondary Market Transactions
with Taylor D. Nadauld, Berk A. Sensoy, Michael S. Weisbach: w22404
An important cost of investing in private equity is the illiquidity of these investments. In response to this illiquidity, a secondary market for transacting stakes in private equity funds has developed. This paper uses proprietary data from a leading intermediary to understand the magnitude and determinants of transaction costs in this market. Most transactions occur at a discount to net asset value. Buyers average an annualized Public Market Equivalent (PME) of 1.023 compared to 0.974 for sellers, implying that buyers outperform sellers by a market-adjusted five percentage points annually. For the most common type of transaction, the sale of stakes in funds four to nine years old, the difference is smaller, about three percentage points. Both the discount to NAV and the difference in ...
 
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