Measuring The Risk-adjusted Performance Of US Buyouts

This paper measures the risk-adjusted performance of US buyouts. It draws on a unique and proprietary set of data on 133 US buyouts between 1984 and 2004. For each of them the authors determine a public market equivalent that matches it with respect to its timing and its systematic risk. After a correction for selection bias in the data, the regression of the buyout internal rates of return on the internal rates of return of the mimicking portfolio yields a positive and statistically significant alpha. The sensitivity analyses highlight the necessity of a comprehensive risk-adjustment that considers both operating risk and leverage risk for an accurate assessment of buyout performance.