Compensation of funds managers increasingly involves elements of profit sharing that entitle managers to option-like payoffs. An important example is the compensation of private equity fund managers. Compensation of private equity fund managers typically consists of a fixed management fee and a...

Purpose This paper aims to explore the effects of illiquidity on portfolio weight and return dynamics. Design/methodology/approach Using a novel continuous-time framework, the paper makes two key contributions to the literature on asset pricing and illiquidity. The first is to study the effects...

Purpose – The purpose of this paper is to propose a novel theory of the equilibrium liquidity premia of private equity funds and explore its asset-pricing implications. Design/methodology/approach – The theory assumes that investors are exposed to the risk of facing surprise liquidity...