Replicating Private Equity Returns with Small Value Stocks…3min video

Replicating Private Equity Returns with Small Value Stocks…3min video

May 16, 2016 Value Investing Research
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(Last Updated On: May 16, 2016)

We discussed private equity replication with public equities here and here.

Erik Stafford just won the “honorable mention” award from AQR for his work on the subject.

Click the image below to hear Erik’s 3 minute video explaining his key findings:

2016-05-16 16_45_18-AQR - Replicating Private Equity with Value Investing Homemade Leverage and Hold
Source: AQR

Bottomline: buy cheap small caps based on enterprise multiples

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Definitions of common statistics used in our analysis are available here (towards the bottom)

About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes,, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.

  • Mark

    Hi Wes,

    What is your opinion on Ibbotson’s illiquidity premium? Could that be a factor in explaining PE returns as well?

  • Illiquidity should certainly earn a premium, in theory, and I think the empirical evidence supports this proposition (although I haven’t dug into that literature in a few years). Long story short, liquidity can definitely drive PE returns and/or small-cap value returns.