Question A:
Although the reported volatility of asset values in private markets (private equity, buyouts, and venture capital) is lower than that of comparable assets in public markets, their true volatility is broadly similar or greater.
Responses
Responses weighted by each expert's confidence
Question B:
Since the global financial crisis, the realized returns on private equities have measurably exceeded the returns on public equities.
Responses
Responses weighted by each expert's confidence
Question A Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
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 John Campbell |
Harvard | Bio/Vote History | ||
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Reported private equity volatility is understated by imperfect marking to market, which lowers volatility particularly when downturns are short-lived. I believe this effect is strong enough that true private equity returns are as volatile as public returns.
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 John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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Privately held assets (and real estate) are not marked to market. Market valuations change quickly. To some extent that's the point: "volatility laundering" or "beta laundering" allows investors to ignore valuation changes, some of which mean revert.
-see background information here -see background information here |
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 Francesca Cornelli |
Northwestern Kellogg | Bio/Vote History | ||
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There is smoothing in the adjustment of the asset values
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 Douglas Diamond |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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 Darrell Duffie |
Stanford | Bio/Vote History | ||
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 Janice Eberly |
Northwestern Kellogg | Bio/Vote History | ||
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Private asset values are opaque and vary in leverage, liquidity, and risk to public markets, so the reported data are not comparable. Adjustments for these factors raise the estimated risk of private assets.
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 Xavier Gabaix |
Harvard | Did Not Answer | Bio/Vote History | |
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 Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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 John Graham |
Duke Fuqua | Bio/Vote History | ||
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 Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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These illiquid assets are not marked to market regularly. Low vol is a mirage. But it is not just vol. Salespeople will say that correlations are low and this is a great diversifier. Reported correlation is low for the same reason. False information used to hype private markets.
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 David Hirshleifer |
USC | Bio/Vote History | ||
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 Harrison Hong |
Columbia | Bio/Vote History | ||
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Fundamentals of private equity is likely similar to public equity. Private equity's lower volatility most likely reflect lack of transparent prices.
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 Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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 Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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 Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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See Cliff Asness's twitter account for details
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 Ralph Koijen |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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 Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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 Andrew Lo |
MIT Sloan | Did Not Answer | Bio/Vote History | |
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 Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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Uncertainty related to underlying fundamentals is higher for riskier companies. Many companies within this category of private firms - including for example VC-backed startups - are extremely risky.
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 Sydney Ludvigson |
NYU | Bio/Vote History | ||
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 Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
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It seems plausible due to assets not being marked to market.
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 Gregor Matvos |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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 Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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Private equity is typically more levered than public equity, having a beta greater than one, and on average having characteristics that are associated with higher volatility in public markets. Hence, one should expect PE to have at least as high, and probably higher, volatility.
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 Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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There is plenty of evidence that reported PE valuations adjustments are delayed and smoothed, which hides volatility. There is no economic reason why values of firms in PE firms should have different volatility than values of comparable publicly traded firms.
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 Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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Smaller assets are more volatile, and private markets typically hold smaller assets. In private markets, there are incentives to report less volatility; accounting and lack of market prices permit it. e.g. pension and endowment returns are smoothed versions of underlying returns.
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 Christine Parlour |
Berkeley Haas | Bio/Vote History | ||
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There are obviously measurement/observation problems. There are substantial differences in the way in which prices are determined.
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 Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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 Manju Puri |
Duke Fuqua | Did Not Answer | Bio/Vote History | |
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 Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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Don't know the data.
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 Paola Sapienza |
Northwestern Kellogg | Bio/Vote History | ||
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Hotly debated topic, mostly due to the opacity of data (and who provides them). Both results are found in the literature; even KKR in a recent paper has argued that volatility is underestimated in PE. The question is by how much?
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 Amit Seru |
Stanford GSB | Bio/Vote History | ||
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With the kinds of investments undertaken, it’s a given
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 Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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 Laura Starks |
UT Austin McCombs | Did Not Answer | Bio/Vote History | |
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 Jeremy Stein |
Harvard | Bio/Vote History | ||
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 Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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More relevant than the volatility are perhaps the risk exposures, which seem substantial for most PE funds.
-see background information here |
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 Amir Sufi |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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 Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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 Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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Lower diversification, higher risk activities (smaller, earlier-stage, growth companies, riskier real estate investments) result in more underlying risk than traditional public equity investments which involve (diversified baskets of) larger, more stable firms.
-see background information here |
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 Ingrid M. Werner |
OSU Fisher School | Bio/Vote History | ||
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 Toni Whited |
UMich Ross School | Bio/Vote History | ||
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Question B Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
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John Campbell |
Harvard | Bio/Vote History | ||
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This was perhaps true before the market downturn in 2022, but smoothing in private equity has concealed the extent of private equity losses in 2022 which are yet to be fully realized.
-see background information here |
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John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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If privately held hide volatility by not marking to market, it's hard to know what performance is, isn't it? After 14 years we have some data, others will review better. But we also need to control for risk characteristics, which, per first question, is hard.
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Francesca Cornelli |
Northwestern Kellogg | Bio/Vote History | ||
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However PE returns have been decreasing towards the stock market values
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Douglas Diamond |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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Darrell Duffie |
Stanford | Bio/Vote History | ||
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Important qualification: I am addressing the returns to non-PE managers, meaning the limited partners. The returns to PE managers (general attends) likely exceed risk-adjusted returns on exchange traded equities, by a lot.
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Janice Eberly |
Northwestern Kellogg | Bio/Vote History | ||
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Reported returns to PE have been higher than public equity, though the gap has declined and the benchmark for comparable public equity is the subject of debate.
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Xavier Gabaix |
Harvard | Did Not Answer | Bio/Vote History | |
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Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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John Graham |
Duke Fuqua | Bio/Vote History | ||
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Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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David Hirshleifer |
USC | Bio/Vote History | ||
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Harrison Hong |
Columbia | Bio/Vote History | ||
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Performance has been higher by 50bps annualized according to recent reports/surveys.
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Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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Strongly true for buyout and venture in the Burgiss data set.
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Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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Ralph Koijen |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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Andrew Lo |
MIT Sloan | Did Not Answer | Bio/Vote History | |
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Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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There are two caveats to this: First, reflecting the higher Beta of VC funds (compared to buyout funds), returns of VC funds tend to be higher. Second, overall realized returns are much higher than net of fee returns obtained by investors.
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Sydney Ludvigson |
NYU | Bio/Vote History | ||
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Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
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Gregor Matvos |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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Adjusting for beta, not clear PE has better average returns. However, there might be an illiquidity premium, but that illiquidity also has some benefit -- the ability to smooth reported returns -- which could lead to an illiquidity discount. The evidence is not clear.
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Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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Perhaps yes, but the answer depends substantially on the discount one applies to current valuations to adjust for the lack of adjustment to recent declines in public market equity values.
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Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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Christine Parlour |
Berkeley Haas | Bio/Vote History | ||
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Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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Manju Puri |
Duke Fuqua | Did Not Answer | Bio/Vote History | |
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Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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Don't know the data and risk-adjustment is tricky with non-tradeable assets.
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Paola Sapienza |
Northwestern Kellogg | Bio/Vote History | ||
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Weakly agree, the answer depends on which data are used, what vintage and it is certainly too early to determine the past two years PME for PE, given that many recent vintages will not come to fruition for a while. The academic literature has serious data issues to nail this
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Amit Seru |
Stanford GSB | Bio/Vote History | ||
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Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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Laura Starks |
UT Austin McCombs | Did Not Answer | Bio/Vote History | |
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Jeremy Stein |
Harvard | Bio/Vote History | ||
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Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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Again, accounting for risk exposures, they don't seem to do all that well: "We find that the average PE fund creates little value for its LPs after accounting for a broader spectrum of risk." (Gupta and van Nieuwerburgh, JF 2021)
-see background information here |
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Amir Sufi |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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It is very difficult to precisely measure the risks and returns of private equity investments.
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Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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Raw returns have been similar, but risk-adjusted returns have been lower for private investments. They key is to properly adjust for (the many different sources of) risk.
-see background information here |
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Ingrid M. Werner |
OSU Fisher School | Bio/Vote History | ||
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Toni Whited |
UMich Ross School | Bio/Vote History | ||
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