This white paper describes the Private Equity (PE) Risk Model that is integrated into FactSet's multi-asset class MAC and FactSet's Unified Risk Platform (URP).
The paper goes through the components of the PE Funds risk model and explains how the model aims to capture well-known empirical facts such as the J-curve effect, the information lag due to infrequent valuations, and the dependence on the public equity markets.
The structure equation describing the model's components mimics Merton's CAPM, while the estimation process includes additional complexities to account for artifacts in the data set driven by how PE fund accounting incorporates information more slowly than public markets. The simulation process is intended to forecast the true economic risk for the time-period concurrent with the public equity markets; therefore, it collapses down the artifacts into only the economically meaningful components.
This paper explains the universe of PE funds used to estimate the model and the respective coverage, shows summary statistics, and explains the meaning of the estimation results. We complete the paper with details on how the PE model is integrated into the broader context of the FactSet MAC (multi-asset class) models.
FactSet clients, read the whitepaper via Online Assistant. Not a FactSet client? Schedule a one-on-one demo with a FactSet specialist.