Private equity-, stock- and mixed asset-portfolios: a bootstrap approach to determine performance characteristics, diversification benefits and optimal portfolio allocations : [Version: December 2003]

In this article, we investigate risk return characteristics and diversification benefits when private equity is used as a portfolio component. We use a unique dataset describing 642 US-American portfolio companies with 3620 private equity investments. Information about precisely dated cash flows at the company level enables for the first time a cash flow equivalent and simultaneous investment simulation in stocks, as well as the construction of stock portfolios for benchmarking purposes. With respect to the methodology involved, we construct private equity, stock-benchmark and mixed-asset portfolios using bootstrap simulations. For the late 1990s we find a dramatic increase in the extent to which private equity outperforms stock investment. In earlier years private equity was underperforming its stock benchmarks. Within the overall class of private equity, returns on earlier private equity investment categories, like venture capital, show on average higher variations and even higher rates of failure. It is in this category in particular that high average portfolio returns are generated solely by the ability to select a few extremely well performing companies, thus compensating for lost investments. There is a high marginal diversifiable risk reduction of about 80% when the portfolio size is increased to include 15 investments. When the portfolio size is increased from 15 to 200 there are few marginal risk diversification effects on the one hand, but a large increase in managing expenditure on the other, so that an actual average portfolio size between 20 and 28 investments seems to be well balanced. We provide empirical evidence that the non-diversifiable risk that a constrained investor, who is exclusively investing in private equity, has to hold exceeds that of constrained stock investors and also the market risk. From the viewpoint of unconstrained investors with complete investment freedom, risk can be optimally reduced by constructing mixed asset portfolios. According to the various private equity subcategories analyzed, there are big differences in optimal allocations to this asset class for minimizing mixed-asset portfolio variance or maximizing performance ratios. We observe optimal portfolio weightings to be between 3% and 65%

Curvature-induced Resolution of Anti-brane Singularities

We study AdS$_7$ vacua of massive type IIA string theory compactified on a 3-sphere with $H_3$ flux and anti-D6-branes. In such backgrounds, the anti-brane backreaction is known to generate a singularity in the $H_3$ energy density, whose interpretation has not been understood so far. We first consider supersymmetric solutions of this setup and give an analytic proof that the flux singularity is resolved there by a polarization of the anti-D6-branes into a D8-brane, which wraps a finite 2-sphere inside of the compact space. To this end, we compute the potential for a spherical probe D8-brane on top of a background with backreacting anti-D6-branes and show that it has a local maximum at zero radius and a local minimum at a finite radius of the 2-sphere. The polarization is triggered by a term in the potential due to the AdS curvature and does therefore not occur in non-compact setups where the 7d external spacetime is Minkowski. We furthermore find numerical evidence for the existence of non-supersymmetric solutions in our setup. This is supported by the observation that the general solution to the equations of motion has a continuous parameter that is suggestive of a modulus and appears to control supersymmetry breaking. Analyzing the polarization potential for the non-supersymmetric solutions, we find that the flux singularities are resolved there by brane polarization as well.Comment: 25 pages, 9 figures. v2: minor changes, discussion of scalar masses adde

Private equity-, stock- and mixed asset-portfolios: A bootstrap approach to determine performance characteristics, diversification benefits and optimal portfolio allocations

In this article, we investigate risk return characteristics and diversification benefits when private equity is used as a portfolio component. We use a unique dataset describing 642 US-American portfolio companies with 3620 private equity investments. Information about precisely dated cash flows at the company level enables for the first time a cash flow equivalent and simultaneous investment simulation in stocks, as well as the construction of stock portfolios for benchmarking purposes. With respect to the methodology involved, we construct private equity, stock-benchmark and mixed-asset portfolios using bootstrap simulations. For the late 1990s we find a dramatic increase in the extent to which private equity outperforms stock investment. In earlier years private equity was underperforming its stock benchmarks. Within the overall class of private equity, returns on earlier private equity investment categories, like venture capital, show on average higher variations and even higher rates of failure. It is in this category in particular that high average portfolio returns are generated solely by the ability to select a few extremely well performing companies, thus compensating for lost investments. There is a high marginal diversifiable risk reduction of about 80% when the portfolio size is increased to include 15 investments. When the portfolio size is increased from 15 to 200 there are few marginal risk diversification effects on the one hand, but a large increase in managing expenditure on the other, so that an actual average portfolio size between 20 and 28 investments seems to be well balanced. We provide empirical evidence that the non-diversifiable risk that a constrained investor, who is exclusively investing in private equity, has to hold exceeds that of constrained stock investors and also the market risk. From the viewpoint of unconstrained investors with complete investment freedom, risk can be optimally reduced by constructing mixed asset portfolios. According to the various private equity subcategories analyzed, there are big differences in optimal allocations to this asset class for minimizing mixed-asset portfolio variance or maximizing performance ratios. We observe optimal portfolio weightings to be between 3% and 65%.Venture Capital, Private Equity, Performance, Return, Risk, Portfolio, Fund, Diversification, Efficient Frontier, Allocation

Recombination activity of iron-gallium and iron-indium pairs in silicon

The recombination activity of iron-gallium (FeGa) and iron-indium (FeIn) pairs in crystalline silicon is studied by means of injection-dependent carrier lifetime measurements on Fe-implanted, Ga- and In-doped p-type silicon wafers of different resistivities (0.3–15Ωcm). Compared to FeB pairs, FeGa and FeIn pairs are found to be much more effective recombination centers in p-type silicon. Using Shockley–Read–Hall statistics we determine the energy level Et of the FeGa-related center to be 0.20eV above the valence-band edge Eν. The strong recombination activity of FeGa is assigned to its large electron-capture cross section σn of 4×10⁻¹⁴cm². The hole-capture cross section σp is 2×10⁻¹⁴cm². For the FeIn-related recombination center, our measurements show that Et=Eν+0.15eV, σn=3.5×10⁻¹³cm², and σp=1.5×10⁻¹⁴cm². Strong illumination with white light is found to dissociate both types of pairs. Storage of the samples in the dark leads to a full repairing of FeGa and FeIn pairs. Lifetime changes measured before and after illumination can be used to determine the interstitialiron concentration in Ga- and In-doped silicon using calibration factors determined from the measured defect parameters.J.S. thanks A. Cuevas and A. Blakers for their hospitality during his research stay at ANU and acknowledges the financial support of the Alexander von Humboldt Foundation. D.M. acknowledges the financial support of the Australian Research Council

Contractual relations between European VC-funds and investors: the impact of reputation and bargaining power on contractual design

The paper explores factors that influence the design of financing contracts between venture capital investors and European venture capital funds. 122 Private Placement Memoranda and 46 Partnership Agreements are investigated in respect to the use of covenant restrictions and compensation schemes. The analysis focuses on the impact of two key factors: the reputation of VC-funds and changes in the overall demand for venture capital services. We find that established funds are more severely restricted by contractual covenants. This contradicts the conventional wisdom which assumes that established market participants care more about their reputation, have less incentive to behave opportunistically and therefore need less covenant restrictions. We also find that managers of established funds are more often obliged to invest own capital alongside with investors money. We interpret this as evidence that established funds have actually less reason to care about their reputation as compared to young funds. One reason for this surprising result could be that managers of established VC funds are older and closer to retirement and therefore put less weight on the effects of their actions on future business opportunities. We also explore the effects of venture capital supply on contract design. Gompers and Lerner (1996) show that VC-funds in the US are able to reduce the number of restrictive covenants in years with high supply of venture capital and interpret this as a result of increased bargaining power by VC-funds. We do not find similar evidence for Europe. Instead, we find that VC-funds receive less base compensation and higher performance related compensation in years with strong capital inflows into the VC industry. This may be interpreted as a signal of overconfidence: Strong investor demand seems to coincide with overoptimistic expectations by fund managers which make them willing to accept higher powered incentive schemes