Cash Dilution in Illiquid Funds

Everts, Martin (2002): Cash Dilution in Illiquid Funds.

Abstract

Cash dilution, the effect of performance reduction through cash, exists in almost every illiquid fund. This article provides a brief overview of the problems of cash dilution in illiquid private equity fund of funds, a formula for the calculation of the cost of cash dilution, two possible solutions for the reduction of cash dilution (namely the over-commitment strategy and a formula to calculate the optimal degree of investment in other assets), an evaluation of the effect of cash dilution in private equity fund of funds, and an evaluation of the usefulness of the over-commitment strategy.

• Item Type: MPRA Paper
• Institution: University of St. Gallen
• Language: English
• Keywords: Illiquid Funds; Private Equity; Cash Dilution; Cash Drag; Over-Commitment; Performance; Venture Capital; Buyout; Mezzanine Debt; Investment Strategy; Cash Flow Pattern; Take-Down Pattern; Distribution Pattern
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics > M20 - General

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