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Market-Based Solutions to Vital Economic Issues

private equity

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Private equity continues to grow as a major investment vehicle in the U.S. and globally. The 12th annual PERC Conference will build on its legacy as a leading research symposium in the ever-expanding field of private equity.

Kenan Institute Executive Director Greg Brown talks with host Winna Brown of EY’s NextWave Private Equity podcast about how the research he’s involved in as research director of the Institute for Private Capital is helping to predict PE performance.

The Private Equity Research Consortium and the Institute for Private Capital (IPC) at the University of Oxford, Saïd Business School will host the 2021 Spring Private Equity Research Symposium on May 27. The Spring Symposium supplements, and will follow the same format as, the long-standing PERC Fall Symposium that takes place each year at UNC. The conference will be held virtually this year for the safety of our members and attendees.

We examine how mission-oriented grand challenges—formed to address the public sector’s unmet needs through development of new technologies and products for high potential impact—originate and catalyze industry incubation. Our analysis of six prominent cases identifies the incubation process, consisting of: identification of unmet needs as a grand challenge, championing and articulation of a mission, leverage of private enterprise, and success or failure of the mission for subsequent industry emergence. The resulting conceptual model highlights key similarities and differences of industry incubation stemming from the public sector’s mission-oriented grand challenges relative to industries triggered by scientific discoveries or unmet user needs where the public sector is not as salient. The analysis reveals successful outcomes are associated with the public sector’s goal setting and carrying out “market functions” pertaining to selection, coordination, and knowledge sharing. We also provide cautions and caveats regarding fault lines that may arise in public-private partnerships.

Many providers of defined-contribution investment plans, such as 401(k) plans, have advocated for broader access to private investments. In this Kenan Insight, we examine the operating, regulatory and legal constraints involved in allowing that access, and explore what, if anything, retail investors are likely to gain from investing in private funds.

This paper evaluates the pros and cons of including private equity fund investments in defined contribution plans. Potential benefits include higher returns and improved diversification as well as a relatively safe method for accessing investments previously only available to institutions and the very wealthy. Despite these enticing benefits, they need to be weighed against potential challenges and costs that may arise from creating this broader access to private funds.

With COVID-19 cases on the rise, much uncertainty remains about how much more damage the pandemic will inflict on the U.S. economy, particularly on certain sectors and small businesses. What is clear, however, is that many businesses will continue to require infusions of capital to stay afloat, and that private sector capital providers will need to play a role in long-term recovery efforts. In this Kenan Insight, we explore how those providers will need to shift their approach to risk assessment in the post-COVID world, and what opportunities might be created for investors who can solve two outstanding issues.

UNC Professor of Economics, UNC Kenan-Flagler Business School Professor and Kenan Institute Senior Faulty Fellow Anusha Chari's latest research was featured in a recent National Bureau of Economic Research article. Chari's co-authored paper with Kenan Institute Director of Research Christian Lundblad and Federal Reserve Bank of Kansas City Economist Karlye Dilts-Stedman, is cited in the article that looks at capital market risks in emerging markets.

This paper characterizes the implications of risk-on/risk-off shocks for emerging market capital flows and returns. We document that these shocks have important implications not only for the median of emerging markets flows and returns but also for the left tail.

We comment on the Securities and Exchange Commission’s proposed Reporting Threshold for Institutional Investment Managers (“Proposal”). We estimate the cost savings from the Proposal are economically small, and amount to 0.004% (0.008%) of assets under management for the average (median) affected filer, and 0.02% of assets for the smallest filer. This small cost savings needs to be weighed against the potentially large costs to investors and others created by eliminating a public disclosure that they heavily use.

We contend that the decision between public and private ownership can be understood in a cost-benefit framework where firms trade-off the governance benefits of private ownership with the potentially lower capital costs of public ownership. Consequently, ownership structure can be understood by examining the governance model that maximizes firm value. We discuss the conditions under which firms maximally benefit from private ownership, and argue that the “governance engineering” by private equity sponsors can ultimately explain the continued rise of private markets to the detriment of public markets.

In stark contrast with liquid asset returns, I find that commercial real estate idiosyncratic return means and variances do not scale with the holding period, even after accounting for all cash flow relevant events. This puzzling phenomenon survives controlling for vintage effects, systematic risk heterogeneity, and a host of other explanations. To explain the findings, I derive an equilibrium search-based asset-pricing model which, when calibrated, provides an excellent fit to transactions data.