Private equity market dynamics: Beyond the surface

This study examines return and volatility spillovers between different regional private equity markets and investment styles to analyze the dynamics of connectedness. Using the LPX Group's listed private equity indices from 2004 to 2023, we find significant fluctuations in return and volatility spillovers over time, with peaks occurring during major financial events. Notably, the peaks in the volatility spillovers are more abrupt but less persistent than those in the return spillovers. Our analysis reveals no direct correspondence between return and volatility spillovers, suggesting that they measure different aspects that should be considered in active portfolio management. The LPX America index is a net transmitter for the LPX Europe index, except during specific European events. In addition, the LPX Buyout index is identified as a consistent net transmitter of return spillovers, whereas the LPX Mezzanine index shows higher net volatility spillovers. Conversely, the LPX Venture index is consistently a net receiver, highlighting its diversification potential for both private equity and traditional stock market investors. These findings provide essential insights into portfolio allocation, risk management, and strategic planning in private equity investing.