Buyout, venture and growth capital investment risk less than expected by PERACS / Posted in: Risk

Dr. Oliver Gottschalg, together with Dr. Bernd Kreuter, Managing Partner at Palladio Partners, recently

conducted research utilizing data from the Association Française des Investisseurs Pour La Croissance

(“AFIC”) consisting of over 3,400 deals and over €10 billion in equity investments made in France.

In a SuperReturn Global Series webcast presentation, Dr. Gottschalg of HEC Paris and PERACS Private

Equity Track Record Analytics breaks down the risk profile LP’s assume at the deal, fund and overall

portfolio level.

While isolated deals are very risky, the Value at Risk (VaR) of an LPs portfolio decreases substantially

with the number of underlying assets. For a portfolio made up of 100 French LBOs, investors were 99.5%

likely to lose no more than 14% of their capital, a potential loss percentage substantially lower than

currently assumed by regulatory regimes. French Venture and Growth Capital investments were also found

to be less risky than currently perceived by regulators.

Gottschalg and Kreuter also looked at venture and growth capital investments, which were also found to be

less risky than currently perceived by regulators. In line with expectations, the VaR is greater for early

stage VC, followed by late stage VC, while buyouts have the lowest VaR in comparison. VaR in private

equity rapidly decreases for larger and more diversified portfolios. And for a typical (reasonably

diversified) investor, the estimated VaR lies substantially below the level implied by the current regulation

(39%).

Related video: https://youtu.be/oeJFZtD6EXY