Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • January 2022
  • Article
  • Review of Financial Studies

Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting

By: Erik Stafford
  • Format:Print
ShareBar

Abstract

The contributions of asset selection and incremental leverage to buyout investment performance are more important than typically assumed or estimated to be. Buyout funds select small firms with distinct value characteristics. Public equities with these characteristics have high risk-adjusted returns relative to common factors. Adding incremental leverage to a publicly traded stock portfolio increases both risks and mean returns in this sample. Direct investments in private equity funds earn lower mean returns than a replicating strategy designed to mimic these key economic features of their investment process with public equities and brokerage loans. (JEL G11, G12, G23, G32)

Keywords

Replicating Portfolio; Private Equity; Investment Portfolio

Citation

Stafford, Erik. "Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting." Review of Financial Studies 35, no. 1 (January 2022): 299–342.
  • Find it at Harvard
  • Register to Read

About The Author

Erik Stafford

Finance
→More Publications

More from the Author

    • March 2022
    • Faculty Research

    Exchanging Salary for Stock Options at a Startup

    By: Erik Stafford
    • 2021
    • Faculty Research

    Limits to Bank Deposit Market Power

    By: Juliane Begenau and Erik Stafford
    • March 2021
    • Faculty Research

    Carnival Corp: Cruising In the Time of Covid

    By: Emily R. McComb and Erik Stafford
More from the Author
  • Exchanging Salary for Stock Options at a Startup By: Erik Stafford
  • Limits to Bank Deposit Market Power By: Juliane Begenau and Erik Stafford
  • Carnival Corp: Cruising In the Time of Covid By: Emily R. McComb and Erik Stafford
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Digital Accessibility
Copyright © President & Fellows of Harvard College