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Idiosyncratic Risk in Private Equity

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  • Elisabeth Mueller

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

Abstract

Owners of private firms are typically exposed to idiosyncratic risk because they often invest a high share of their net worth in just one firm. One would expect that these owners require a compensation for the risk exposure in the form of higher returns to private equity. Empirical work has indeed shown that there is a positive relationship between share of net worth invested and realized returns to private equity. However, return data covering the last two decades do not show a consistently higher average return to private equity compared to public equity. Hence, there does not seem to be a systematic compensation for the exposure to idiosyncratic risk in private equity.

Suggested Citation

  • Elisabeth Mueller, 2024. "Idiosyncratic Risk in Private Equity," Post-Print hal-04840932, HAL.
    • Handle: RePEc:hal:journl:hal-04840932
    DOI: 10.1007/978-3-030-38738-9_186-1
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