Capital Commitment
Abstract/Contents
- Abstract
- Ten trillion dollars are allocated to illiquid vehicles for which investors commit ex-ante to transferring capital on demand – most of which are Private Equity (PE) funds. We design a dynamic portfolio allocation model in which investors commit capital to PE. The effects of commitment risk on investors’ portfolios and welfare are large. Investors are under-allocated to PE, and willing to pay a premium to update their PE allocation when capital is called, which is more than twice the one to eliminate standard liquidity frictions induced by the limited tradability of PE. In contrast, investors are not willing to pay to remove the uncertainty over the timing of capital call.
Description
| Type of resource | text |
|---|---|
| Date created | July 29, 2021 |
Creators/Contributors
| Author | Gourier, Elise |
|---|---|
| Author | Phalippou, Ludovic |
| Author | Westerfield, Mark M. |
| Organizer of meeting | Judd, Kenneth |
| Organizer of meeting | Pohl, Walter |
| Organizer of meeting | Schmedders, Karl |
| Organizer of meeting | Wilms, Ole |
Subjects
| Subject | capital commitment |
|---|---|
| Subject | private equity |
| Subject | liquidity cost |
| Genre | Text |
| Genre | Working paper |
| Genre | Grey literature |
Bibliographic information
Access conditions
- Use and reproduction
- User agrees that, where applicable, content will not be used to identify or to otherwise infringe the privacy or confidentiality rights of individuals. Content distributed via the Stanford Digital Repository may be subject to additional license and use restrictions applied by the depositor.
- License
- This work is licensed under a Creative Commons Attribution 4.0 International license (CC BY).
Preferred citation
- Preferred citation
- Gourier, E., Phalippou, L., and Westerfield, M. (2022). Capital Commitment. Stanford Digital Repository. Available at https://purl.stanford.edu/yf333xh1687
Collection
SITE Conference 2021
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