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The Performance of Private Equity Funds

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Author Info
Ludovic Phalippou
Oliver Gottschalg

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Abstract

The performance of private equity funds as reported by industry associations and previous research is overstated. A large part of performance is driven by inflated accounting valuation of ongoing investments and we find a bias toward better performing funds in the data. We find an average net-of-fees fund performance of 3% per year below that of the S&P 500. Adjusting for risk brings the underperformance to 6% per year. We estimate fees to be 6% per year. We discuss several misleading aspects of performance reporting and some side benefits as a first step toward an explanation. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/rfs/hhn014
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Publisher Info
Article provided by Oxford University Press for Society for Financial Studies in its journal The Review of Financial Studies.

Volume (Year): 22 (2009)
Issue (Month): 4 (April)
Pages: 1747-1776
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Handle: RePEc:oup:rfinst:v:22:y:2009:i:4:p:1747-1776

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Steven Kaplan & Antoinette Schoar, 2003. "Private Equity Performance: Returns, Persistence and Capital," NBER Working Papers 9807, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Lerner, Josh & Schoar, Antoinette, 2004. "The illiquidity puzzle: theory and evidence from private equity," Journal of Financial Economics, Elsevier, vol. 72(1), pages 3-40, April. [Downloadable!] (restricted)
    Other versions:
  3. Thomas Hellman & Laura Lindsey & Manju Puri, 2004. "Building Relationships Early: Banks in Venture Capital," NBER Working Papers 10535, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Alexander Ljungqvist & Matthew Richardson, 2003. "The cash flow, return and risk characteristics of private equity," NBER Working Papers 9454, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Jacklin, Charles J & Bhattacharya, Sudipto, 1988. "Distinguishing Panics and Information-Based Bank Runs: Welfare and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 568-92, June. [Downloadable!] (restricted)
  6. Paul Gompers & Josh Lerner, 1998. "Venture Capital Distributions: Short-Run and Long-Run Reactions," Journal of Finance, American Finance Association, vol. 53(6), pages 2161-2183, December. [Downloadable!] (restricted)
  7. Gompers, Paul & Lerner, Josh, 1999. "An analysis of compensation in the U.S. venture capital partnership1," Journal of Financial Economics, Elsevier, vol. 51(1), pages 3-44, January. [Downloadable!] (restricted)
  8. Josh Lerner & Antoinette Schoar & Wan Wong, 2005. "Smart Institutions, Foolish Choices? The Limited Partner Performance Puzzle," NBER Working Papers 11136, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23. [Downloadable!]
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  10. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Narasimhan Jegadeesh & Roman Kräussl & Joshua Pollet, 2009. "Risk and Expected Returns of Private Equity Investments: Evidence Based on Market Prices," NBER Working Papers 15335, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Tim Jenkinson, 2008. "The development and performance of European private equity," OFRC Working Papers Series 2008fe17, Oxford Financial Research Centre. [Downloadable!]
  3. Ayako Yasuda & Andrew Metrick, 2007. "The economics of private equity funds," Proceedings, Federal Reserve Bank of San Francisco, issue Oct. [Downloadable!]
  4. Gottschalg, Oliver & Meier, Degenhard, 2005. "Interest alignment and firm performance," Les Cahiers de Recherche 825, HEC Paris. [Downloadable!]
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This page was last updated on 2009-11-28.

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