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Predicting private equity performance : the development of a private equity performance-forecasting model for AEGON Asset Management

Tolkamp, Coen (2007) Predicting private equity performance : the development of a private equity performance-forecasting model for AEGON Asset Management.

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Abstract:Private equity is a growing asset class and is renowned for its opaque characteristics. Being a large investor in private equity AEGON Asset Management is interested in macroeconomic factors that drive private equity performance. Evaluation and forecasting of private equity performance in two distinct geographic areas, Europe and the United States, are of key interest to AEGON Asset Management. This research shows that it is reasonably well possible to evaluate and forecast private equity performance albeit under a series of assumptions and without back-testing results. The used estimation model based approach is constructed flexibly to adapt to more available information in the future. The validity of the results will increase with the availability of more quantitative and qualitative information on private equity (performance) and with improvements to the used algorithm. Potential macroeconomic drivers are based on a literature search and the opinion of professional portfolio managers at AEGON Asset Management and external professionals. Aggregated private equity performance data of both the US and Europe is used as the basis for an estimation model to determine a “private equity index”. Linear regression is used to relate this index with the determined macroeconomic drivers. The results of this research quantitatively confirmed the expectations of AEGON Asset Management about private equity: private equity performance is highly cyclical and thus depends strongly on economic conditions. This research was not aimed at determine risk adjusted performance or alpha performance. High yield credit spreads and stock market developments are important drivers / forecasting indicators for private equity performance. A quadrant model has been developed for AEGON Asset Management. This is an automated tool to evaluate and forecast private equity annually or semi-annually. This tool is based on the results of the regression analysis.
Item Type:Essay (Master)
Clients:
AEGON Asset Management
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:http://purl.utwente.nl/essays/771
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