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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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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. Chung, Ji-Woong & Sensoy, Berk A. & Stern, Lea H. & Weisbach, Michael S., 2010. "Pay for Performance from Future Fund Flows: The Case of Private Equity," SIFR Research Report Series 77, Institute for Financial Research.
  2. 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.
  3. Steven N. Kaplan & Antoinette Schoar, 2005. "Private Equity Performance: Returns, Persistence, and Capital Flows," Journal of Finance, American Finance Association, vol. 60(4), pages 1791-1823, 08.
  4. Jonathan B. Berk & Richard C. Green, 2002. "Mutual Fund Flows and Performance in Rational Markets," NBER Working Papers 9275, National Bureau of Economic Research, Inc.
  5. Josh Lerner & Antoinette Schoar & Jialan Wang, 2008. "Secrets of the Academy: The Drivers of University Endowment Success," NBER Working Papers 14341, National Bureau of Economic Research, Inc.
  6. Andrew Metrick, 2010. "The Economics of Private Equity Funds," Review of Financial Studies, Society for Financial Studies, vol. 23(6), pages 2303-2341, June.
  7. 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, vol. 27(1), pages 102-152, January.
  8. Shourun Guo & Edith S. Hotchkiss & Weihong Song, 2011. "Do Buyouts (Still) Create Value?," Journal of Finance, American Finance Association, vol. 66(2), pages 479-517, 04.
  9. Gompers, Paul & Lerner, Josh, 1999. "An analysis of compensation in the U.S. venture capital partnership," Journal of Financial Economics, Elsevier, vol. 51(1), pages 3-44, January.
  10. Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254.
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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 2014-016, Tilburg University, Center for Economic Research.

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