Rational Opacity In Private Equity Markets∗

Private equity investments are highly illiquid compared to publicly traded alternatives. We argue that, given this distinguishing characteristic, private equity markets should optimally feature restricted information ows between operators and investors precisely as they do in practice. When secondary market opportunities are likely to be shallow more information can reduce the expected liquidation value of projects. Even given direct control over information design, it is optimal for investors to incentivize fund managers to withhold interim information from them. To make these points, we describe a multi-period investment model where the optimal information design can be fully characterized.