In Rob Slee and John K. Paglia’s article “Private Cost of Capital Model,” recently published in the March/April issue of the Value Examiner, the authors describe their use of private capital market return data captured by the ongoing Pepperdine private cost of capital survey. 

“Business appraisers employ public securities data as a surrogate for private return expectations.  This is inappropriate, as the public and private markets are not substitutes; they are driven by different, unrelated factors,”  Slee and Paglia say.  In Slee’s worldview, public and private capital markets are not comparables because their risk/return is different, liquidity is different, and management involvement is different.

More information about the model and the Pepperdine private capital markets survey is available here.