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Lucid pension plan begins investing in VC funds in 2010. They commit to a few funds every year. They compute returns to their VC portfolio

Lucid pension plan begins investing in VC funds in 2010. They commit to a few funds every year. They compute returns to their VC portfolio by adding the cash flows they receive and the reported company values from all their funds. In 2020, we are trying to figure out the performance of the VC investments over the prior 10 years using the following equation: Rt - Rf,t = + (Rm,t Rf,t) + eit where Rt is the realized quarterly return on the VC portfolio, Rf,t represents the risk-free rate, Rm is the regression slope coefficient, is the regression intercept, and eit is the regression error term. The above regression produces statistically significant estimates of = .75 and = 7.50 (annualized), with an R2 of 0.32. Evaluate the following statements made by your management team agreeing or disagreeing with each along with the underlying reasoning: a. The estimated alpha is too high because of survivor bias b. The estimated beta is too low because of a stale value problem. c. This model may not properly adjust for the high probability of failure for VC investments. d. This model does not properly adjust for the illiquidity of VC investments. e. Something else is wrong. 15 points

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