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Buy Low, Sell High? Do Private Equity Fund Managers Have Market Abilities?

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  • Tim Jenkinson
  • Stefan Morkoetter
  • Thomas Wetzer

Abstract

When investors commit capital to a private equity fund, the money is not immediately invested but is called by the fund manager throughout an investment period of up to five years. This business model allows private equity fund managers to invest the committed capital at their own discretion, which gives them the flexibility to time the markets. Based on 5,366 private equity deals, which are benchmarked against around 11,000 transaction market multiples and 170,000 trading market multiples, we find evidence that on average private equity funds are able to add value by timing the markets. Throughout the holding period, private equity funds achieve on average a 0.5 EBITDA market multiple expansion. Market timing ability is not captured by performance measures such as the PME, yet it is a potential source of returns for investors.

Suggested Citation

  • Tim Jenkinson & Stefan Morkoetter & Thomas Wetzer, 2018. "Buy Low, Sell High? Do Private Equity Fund Managers Have Market Abilities?," Working Papers on Finance 1813, University of St. Gallen, School of Finance.
    • Handle: RePEc:usg:sfwpfi:2018:13
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    References listed on IDEAS

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    Cited by:

    1. Matthias Huss & Daniel Steger, 2020. "Diversification and Fund Performance—An Analysis of Buyout Funds," JRFM, MDPI, vol. 13(6), pages 1-17, June.

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    More about this item

    Keywords

    Private Equity; Mergers and Acquisitions; Value Creation; Market Timing;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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