Can investors time their exposure to private equity?

Private equity performance, both for buyouts and venture capital, has been highly cyclical: periods of high fundraising have been followed by periods of low performance. Despite this seemingly predictable variation, we find modest gains, at best, to pursuing realistic, investable strategies that time capital commitments to private equity. This occurs, in part, because investors can only time their commitments to funds; they cannot time when commitments are called or when investments are exited. There is a high degree of time-series correlation in net cash flows even across commitment strategies that allocate capital in a very different manner over time.     

Risk-Adjusted Discount Rates and Projects of Unequal Lives

When evaluating mutually exclusive projects of unequal lives and with differing risk, standard approaches such as the constant chain of replacement, lowest common multiple and equivalent annual value techniques are usually applied. In using these techniques to rank projects, a critical issue is the manner in which uncertainty in the cashflows is resolved through time. We explore the applicability of net present value techniques to the problem of valuing assets with unequal lives, emphasising the use of equivalent annual value and lowest common multiple methods, and the correct choice of discount rate. Our results have direct application to practical capital budgeting problems such as choosing the optimum lifespan for a single asset, choosing between assets with different lifespans, and deciding whether to "run an asset for another year".     

Consumer behaviour and the purchasing of dental services: Influences on selection and evaluation of health care services

This paper examines the process of interaction between consumers and providers of dental services in terms of the key selection and evaluation criteria employed by consumers. Focusing on the United Kingdom, it examines the impact of changes in both pricing and provision on the utilisation and evaluation of dental services. Based on a questionnaire survey of dental patients, in the context of the evolving body of literature concerned with consumer behaviour in respect of services, the paper attempts to improve the current understanding of the key factors shaping consumer choice in respect of professional services. Specifically, it argues that the highly complex nature of professional services impacts on patterns of consumer behaviour, resulting in the relationship between the individual service professional and the consumer being the focus of consumer evaluation. This in turn has significant implications for the effective marketing of such professional services.     

Call Options and Liquidation in Commercial Mortgage Financing

This paper models a commercial real estate project where a wealth-constrained manager uses outside debt financing to purchase a project who's return depends on future economic conditions and the manager's investment in the project. It is shown that it is inefficient to finance the project with callable debt. This prediction is consistent with observed real estate financing practice. I also model the outcome of financial distress allowing for (1) debt forgiveness, (2) equity in exchange for debt forgiveness, and (3) foreclosure. The model motivates (1) why commercial real estate loans are often foreclosed, and (2) why lenders foreclose assets at fire-sale prices.     

Moral Hazard,portfolio allocation,and asset returns for thrift institutions

This article examines the earnings performance of nontraditional assets allowed to thrifts since the early 1980s. It uses the statistical cost accounting methodology developed by Hester and Zoellner to estimate average returns on thrift portfolio investments for the years ending June 30, 1987 and June 30, 1988. Results show that average returns on land loans, service corporation investment, real estate investment, and commercial loans were significantly lower than returns on more traditional assets. The results are far more pronounced at capital deficient institutions, lending support to the hypothesis that they used nontraditional investments as a means of exploiting the deposit insurance system. Returns on nontraditional assets are significantly affected by geographic factors, even for well capitalized institutions. The article concludes with an evaluation of the reimposition of portfolio restrictions on thrifts by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.The views expressed in this paper are those of the authors and do not necessarily represent the views or opinions of the Federal Housing Finance Board, the Board of Governors of the Federal Reserve System, or the Federal Deposit Insurance Corporation. George Benston, Tom Fomby, Allen Berger, John Wolken, and anonymous referees made numerous constructive suggestions.     

Race,revenues, and college basketball

Customer discrimination may result in racial differences in the marginal revenue products generated by workers. College basketball data allow for direct comparisons of the racial differences in the marginal revenues generated by players. This article compares the revenue generating potential of the top black and white college basketball players. A highly skilled white college player generates over $100,000 in per game revenues as compared to around $30,000 for a black player of equal talent, providing a strong incentive for colleges to discriminate against recruiting black student-athletes.     

Consistency of UK Pension Fund Investment Performance

Transition matrix techniques are used to relate the past and present performance of pension fund portfolios. In particular, funds are ranked to study the tendency of portfolios to remain in the same quartile of the ranking as they were in the previous period. For raw returns, funds in both of the top quartiles are found to be more likely to remain in the same quartile than would be expected by chance. This result can be taken as limited evidence for the consistency of performance. Similar systemic effects are observed on a risk-adjusted basis. There appears to be clear evidence that some fund managers can offer a degree of consistent good performance.