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Limited Partner Performance and the Maturing of the Private Equity Industry

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  • Sensoy, Berk A.

    (OH State University)

  • Wang, Yingdi

    (CA State University, Fullerton)

  • Weisbach, Michael S.

    (OH State University)

Abstract

We evaluate the performance of limited partners' (LPs) private equity investments over time. Using a sample of 14,380 investments by 1,852 LPs in 1,250 buyout and venture funds started between 1991 and 2006, we find that the superior performance of endowment investors in the 1991-1998 period, documented in prior literature, is mostly due to their greater access to the top-performing venture capital partnerships. In the subsequent 1999-2006 period, endowments no longer outperform, and neither have greater access to funds who are likely restrict access nor make better investment selections than other types of institutional investors. We discuss how these results are consistent with the general maturing of the industry, as private equity has transitioned from a niche, poorly understood area to a ubiquitous part of institutional investors' portfolios.

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Bibliographic Info

Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2013-01.

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Date of creation: Jan 2013
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Handle: RePEc:ecl:ohidic:2013-01

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  1. Ji-Woong Chung & Berk A. Sensoy & Lea H. Stern & Michael S. Weisbach, 2010. "Pay for Performance from Future Fund Flows: The Case of Private Equity," NBER Working Papers 16369, National Bureau of Economic Research, Inc.
  2. Steven N. Kaplan & Antoinette Schoar, 2005. "Private Equity Performance: Returns, Persistence, and Capital Flows," Journal of Finance, American Finance Association, American Finance Association, vol. 60(4), pages 1791-1823, 08.
  3. Josh Lerner & Antoinette Schoar & Wan Wongsunwai, 2007. "Smart Institutions, Foolish Choices: The Limited Partner Performance Puzzle," Journal of Finance, American Finance Association, American Finance Association, vol. 62(2), pages 731-764, 04.
  4. Gompers, Paul & Lerner, Josh, 1999. "An analysis of compensation in the U.S. venture capital partnership," Journal of Financial Economics, Elsevier, Elsevier, vol. 51(1), pages 3-44, January.
  5. Jonathan B. Berk & Richard C. Green, 2002. "Mutual Fund Flows and Performance in Rational Markets," FAME Research Paper Series, International Center for Financial Asset Management and Engineering rp100, International Center for Financial Asset Management and Engineering.
  6. Josh Lerner & Antoinette Schoar & Jialan Wang, 2008. "Secrets of the Academy: The Drivers of University Endowment Success," Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 207-22, Summer.
  7. Ayako Yasuda & Andrew Metrick, 2007. "The economics of private equity funds," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Oct.
  8. Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, Elsevier, vol. 24(2), pages 217-254.
  9. Shourun Guo & Edith S. Hotchkiss & Weihong Song, 2011. "Do Buyouts (Still) Create Value?," Journal of Finance, American Finance Association, American Finance Association, vol. 66(2), pages 479-517, 04.
  10. Yael V. Hochberg & Alexander Ljungqvist & Annette Vissing-Jørgensen, 2014. "Informational Holdup and Performance Persistence in Venture Capital," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 27(1), pages 102-152, January.
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Cited by:
  1. Da Rin, M. & Phalippou, L., 2014. "There is Something Special About Large Investors: Evidence From a Survey of Private Equity Limited Partners," Discussion Paper, Tilburg University, Tilburg Law and Economic Center 2014-010, Tilburg University, Tilburg Law and Economic Center.

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