Private Equity (PE) has grown into a substantial asset class, but there remain major problems with measuring PE fund returns.
Investors continue to use the internal rate of return (IRR) as a key measure of fund performance. It is well known that early returns of cash can have a substantial impact on fund IRRs, but the magnitude and causes of this effect have not previously been systematically .
In this session Simon Hayley will demonstrate how the IRR is affected by two biases: a convexity bias, and a “quit-whilst-ahead” bias arising because the returns on PE projects are correlated with their durations.
Event: 13:00 - 13:40
CPD Points: 0.75
Simon Hayley, Senior Lecturer of Fiance, Bayes Business School
Simon Hayley joined Bayes Business School (formerly Cass) following a career as an economic adviser at HM Treasury and the Reserve Bank of New Zealand, and as a market analyst for a range of city institutions.
His research at Bayes has been published in leading global journals. A key theme in this research is investor behaviour and the misconceptions that sometimes drive it. Based on his teaching, he wrote "Economics: A Primer" (OUP, 2018) with Alec Chrystal.