Deep Dive: Illiquidity premium key in private equity returns

Blurring the line

Bo Brownlee CFA at SECOR Asset Management dives into private markets.

Private equity (PE) provides an additional return premium to investors as compensation for holding risky investments over a multi-year time horizon. In contrast, public markets boast deep and active markets that offer the prospect of immediate liquidity. This illiquidity premium has been a key component in the long-term return premium investors have received from private equity. The size of the premium can be debated, but there is nevertheless a strong case for its existence. The purpose here is not to argue the appropriate size of the premium, but to take a closer look at a phenomenon i...