Private equities offer high returns in exchange for taking a certain level of risk. These risks result, first and foremost, in considerable return dispersion and sometimes, despite the long-term investment horizon, in exits in less favourable conditions than anticipated by investors. Private companies can also go bankrupt, but they are more likely to do so in certain segments of the private market.
Using the privateMetrics indices and PECCS taxonomy, this report provides a comprehensive risk analysis among private equities. Here, we compare advertising and subscription-based businesses against the private2000 index, highlighting key insights:
- Advertising Businesses: Demonstrate superior stability with a 10-year volatility of 14.05%, well below the private2000’s 18.10%. They also exhibit lower drawdowns, making them one of the least risky revenue models. In September 2024, advertising-based businesses achieved a return of 0.85%, outperforming the private2000 index’s 0.72% return.
- Subscription Businesses: Exhibit higher risk, with a 10-year volatility of 18.35%, slightly exceeding the private2000’s 18.10%. Their reliance on long-term commitments increases susceptibility to economic downturns, leading to sharper drawdowns. In September 2024, subscription-based businesses recorded a return of 0.65%, underperforming the private2000 index.
Table 1: Comparing Risk Metrics of Advertising and Subscription businesses with private2000 index
| Sep Return | Volatility | VaR 97.5% | |||||
| 3 Years | 5 Years | 10 Years | 3 Years | 5 Years | 10 Years | ||
| private2000 | 0.21% | 12.21% | 13.58% | 15.18% | 19.22% | 22.17% | 18.10% |
| Advertising | 0.37% | 11.23% | 13.03% | 14.05% | 11.23% | 13.03% | 14.05% |
| Subscription | 0.12% | 15.82% | 18.35% | 19.75% | 15.82% | 18.35% | 19.75% |
Source: privateMetrics indices (EW, LCL) as of 30/09/2024.
Technical information: privateMetrics market indices and benchmarks are asset-level private equity indices that reflect the dynamics of private markets with a beta of 1. They are built by repricing thousands of private companies each month using the latest private market transactions to calibrate an asset pricing model. This approach achieves a high degree of pricing precision at the market segment level, ensuring that indices and benchmarks built with this data accurately reflect the level of market prices and of the risk of each segment over time.
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To find out more, please refer to the latest factsheet or to our asset valuation methodology.
