Abstract
The paper examines the liquidity risk of a private equity firm that decides to dispose of a large holding in its portfolio. As the sale takes time, it requires a careful balancing act of the exposure to the fluctuations in the market value of the investment against the large sale-induced price depression. A mean-standard deviation utility framework is an appealing decision tool for optimizing protracted asset dispositions. The firm maximizes the expected profit from the sale strategy net of the price concession minus a penalty function for exposure to the price risk, with the penalty weight related to a loss confidence interval.
JEL Codes
G32, D92
Keywords
Private Equity, Utility, Venture Capital
Recommended Citation
Dubil, Robert
(2003)
"A Simple Utility Approach to Private Equity Sales,"
Journal of Entrepreneurial Finance and Business Ventures:
Vol. 8:
Iss.
1, pp. 103-110.
DOI: https://doi.org/10.57229/2373-1761.1213
Available at:
https://digitalcommons.pepperdine.edu/jef/vol8/iss1/7
