Estimating Private Equity Market Beta Using Cash Flows : A Cross-Sectional Regression of Fund-Market Paired Internal Rates of Return

We develop a new method to estimate private equity funds' market beta from cash flows. Our methodology extends the widely known public market equivalent calculation to a cross-sectional regression. By simply regressing funds' internal rates of return on their paired market internal rates of return, we are able to estimate private equity market betas. For venture funds, we find a high market beta. For buyout funds, we find a low beta. Though we have a small sample, our results fall in line with results recently reported in the literature