Measuring Liquidity Premiums for Illiquid Assets

Abstract

Private assets, such as private equity, venture capital, and real estate, have long been a thorn in the side of asset allocators and chief investment officers. Their lack of liquidity makes it hard to analyze their return stream and to construct a performance attribution. The illiquid nature of these assets often leads to misspecification and estimation of the systematic risk embedded in their returns and the true amount of alpha generated by these managers.