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The Pricing of Liquidity Risk in Buyout Funds – A Public Market Perspective

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  • Matthias Huss

    (University of Basel)

  • Heinz Zimmermann

    (University of Basel)

Abstract

This paper analyzes the structure and pricing of liquidity risk for international listed buyout funds. We use a time-series framework for our tests which allows us to discriminate between the exposure of buyout funds to two types of liquidity: Market and funding liquidity. We find that the innovation in funding liquidity is a priced factor for buyout funds, while changes in market liquidity are not. Investors require a risk premium of approximately 3% to 7% per annum in order to be compensated for bearing that risk. Controlling for funding liquidity risk decreases the alpha of the asset class to zero.

Suggested Citation

  • Matthias Huss & Heinz Zimmermann, 2018. "The Pricing of Liquidity Risk in Buyout Funds – A Public Market Perspective," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 70(3), pages 285-312, July.
    • Handle: RePEc:spr:schmbr:v:70:y:2018:i:3:d:10.1007_s41464-018-0050-6
    DOI: 10.1007/s41464-018-0050-6
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    More about this item

    Keywords

    Private equity; Buyout funds; Liquidity risk; Funding risk; Systematic risk;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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