IDEAS home Printed from https://ideas.repec.org/a/eee/jfinec/v124y2017i1p172-194.html

Interim fund performance and fundraising in private equity

Author

Listed:
  • Barber, Brad M.
  • Yasuda, Ayako

Abstract

General partners (GPs) in private equity (PE) report the performance of an existing fund while raising capital for a follow-on fund. Interim performance has large effects on fundraising outcomes. The impact is greatest when backed by exits and for low reputation GPs. Faced with these incentives, GPs time their fundraising to coincide with periods of peak performance through two strategies: (1) exit and fundraise and (2) net asset value (NAV) management. Consistent with the former, performance peaks are greatest for funds with high realization rates. Consistent with the latter, low reputation GPs with low realization rates experience performance peaks and erosions in performance after fundraising.

Suggested Citation

  • Barber, Brad M. & Yasuda, Ayako, 2017. "Interim fund performance and fundraising in private equity," Journal of Financial Economics, Elsevier, vol. 124(1), pages 172-194.
    • Handle: RePEc:eee:jfinec:v:124:y:2017:i:1:p:172-194
    DOI: 10.1016/j.jfineco.2017.01.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X17300016
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jfineco.2017.01.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Sensoy, Berk A. & Wang, Yingdi & Weisbach, Michael S., 2014. "Limited partner performance and the maturing of the private equity industry," Journal of Financial Economics, Elsevier, vol. 112(3), pages 320-343.
    2. Robert S. Harris & Tim Jenkinson & Steven N. Kaplan, 2014. "Private Equity Performance: What Do We Know?," Journal of Finance, American Finance Association, vol. 69(5), pages 1851-1882, October.
    3. Arthur Korteweg & Morten Sorensen, 2010. "Risk and Return Characteristics of Venture Capital-Backed Entrepreneurial Companies," The Review of Financial Studies, Society for Financial Studies, vol. 23(10), pages 3738-3772, October.
    4. Degeorge, Francois & Martin, Jens & Phalippou, Ludovic, 2016. "On secondary buyouts," Journal of Financial Economics, Elsevier, vol. 120(1), pages 124-145.
    5. Andrew Metrick & Ayako Yasuda, 2011. "Venture Capital and Other Private Equity: a Survey," European Financial Management, European Financial Management Association, vol. 17(4), pages 619-654, September.
    6. Brown, Gregory W. & Gredil, Oleg R. & Kaplan, Steven N., 2019. "Do private equity funds manipulate reported returns?," Journal of Financial Economics, Elsevier, vol. 132(2), pages 267-297.
    7. Yael V. Hochberg & Alexander Ljungqvist & Annette Vissing-Jørgensen, 2014. "Informational Holdup and Performance Persistence in Venture Capital," The Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 102-152, January.
    8. Ji-Woong Chung & Berk A. Sensoy & Léa Stern & Michael S. Weisbach, 2012. "Pay for Performance from Future Fund Flows: The Case of Private Equity," The Review of Financial Studies, Society for Financial Studies, vol. 25(11), pages 3259-3304.
    9. repec:oup:rfinst:v:25:y::i:11:p:3259-3304 is not listed on IDEAS
    10. 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, August.
    11. Ludovic Phalippou & Oliver Gottschalg, 2009. "The Performance of Private Equity Funds," The Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1747-1776, April.
    12. Robinson, David T. & Sensoy, Berk A., 2016. "Cyclicality, performance measurement, and cash flow liquidity in private equity," Journal of Financial Economics, Elsevier, vol. 122(3), pages 521-543.
    13. Paul A. Gompers & Josh Lerner, 1998. "What Drives Venture Capital Fundraising?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1998 Micr), pages 149-204.
    14. Cochrane, John H., 2005. "The risk and return of venture capital," Journal of Financial Economics, Elsevier, vol. 75(1), pages 3-52, January.
    15. Arthur Korteweg & Stefan Nagel, 2016. "Risk‐Adjusting the Returns to Venture Capital," Journal of Finance, American Finance Association, vol. 71(3), pages 1437-1470, June.
    16. Gompers, Paul A., 1996. "Grandstanding in the venture capital industry," Journal of Financial Economics, Elsevier, vol. 42(1), pages 133-156, September.
    17. Lerner, Joshua, 1994. "Venture capitalists and the decision to go public," Journal of Financial Economics, Elsevier, vol. 35(3), pages 293-316, June.
    18. repec:bla:jfinan:v:53:y:1998:i:6:p:2161-2183 is not listed on IDEAS
    19. Andrew Metrick, 2010. "The Economics of Private Equity Funds," The Review of Financial Studies, Society for Financial Studies, vol. 23(6), pages 2303-2341, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tereza Tykvová, 2018. "Venture capital and private equity financing: an overview of recent literature and an agenda for future research," Journal of Business Economics, Springer, vol. 88(3), pages 325-362, May.
    2. Robert S. Harris & Tim Jenkinson & Steven N. Kaplan & Ruediger Stucke, 2020. "Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds," NBER Working Papers 28109, National Bureau of Economic Research, Inc.
    3. Rin, Marco Da & Hellmann, Thomas & Puri, Manju, 2013. "A Survey of Venture Capital Research," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 573-648, Elsevier.
    4. Buchner, Axel & Wagner, Niklas F., 2017. "Rewarding risk-taking or skill? The case of private equity fund managers," Journal of Banking & Finance, Elsevier, vol. 80(C), pages 14-32.
    5. Brown, Gregory W. & Gredil, Oleg R. & Kaplan, Steven N., 2019. "Do private equity funds manipulate reported returns?," Journal of Financial Economics, Elsevier, vol. 132(2), pages 267-297.
    6. Robinson, David T. & Sensoy, Berk A., 2016. "Cyclicality, performance measurement, and cash flow liquidity in private equity," Journal of Financial Economics, Elsevier, vol. 122(3), pages 521-543.
    7. David T. Robinson & Berk A. Sensoy, 2012. "Do Private Equity Managers Earn Their Fees? Compensation, Ownership, and Cash Flow Performance," NBER Working Papers 17942, National Bureau of Economic Research, Inc.
    8. Nicolas P. B. Bollen & Berk A. Sensoy, 2022. "How much for a haircut? Illiquidity, secondary markets, and the value of private equity," Financial Management, Financial Management Association International, vol. 51(2), pages 501-538, June.
    9. Abhishek Bhardwaj & Abhinav Gupta & Sabrina T. Howell, 2025. "Leveraged Payouts: How Using New Debt to Pay Returns in Private Equity Affects Firms, Employees, Creditors, and Investors," Working Papers 25-12, Center for Economic Studies, U.S. Census Bureau.
    10. Gornall, Will & Strebulaev, Ilya A., 2020. "Squaring venture capital valuations with reality," Journal of Financial Economics, Elsevier, vol. 135(1), pages 120-143.
    11. Jean-Noël Barrot, 2017. "Investor Horizon and the Life Cycle of Innovative Firms: Evidence from Venture Capital," Management Science, INFORMS, vol. 63(9), pages 3021-3043, September.
    12. Korteweg, Arthur & Sorensen, Morten, 2017. "Skill and luck in private equity performance," Journal of Financial Economics, Elsevier, vol. 124(3), pages 535-562.
    13. Carolin Bock & Maximilian Schmidt, 2015. "Should I stay, or should I go? – How fund dynamics influence venture capital exit decisions," Review of Financial Economics, John Wiley & Sons, vol. 27(1), pages 68-82, November.
    14. Barber, Brad M. & Morse, Adair & Yasuda, Ayako, 2021. "Impact investing," Journal of Financial Economics, Elsevier, vol. 139(1), pages 162-185.
    15. Nadauld, Taylor D. & Sensoy, Berk A. & Vorkink, Keith & Weisbach, Michael S., 2019. "The liquidity cost of private equity investments: Evidence from secondary market transactions," Journal of Financial Economics, Elsevier, vol. 132(3), pages 158-181.
    16. Arpit Gupta & Stijn Van Nieuwerburgh, 2021. "Valuing Private Equity Investments Strip by Strip," Journal of Finance, American Finance Association, vol. 76(6), pages 3255-3307, December.
    17. Dyaran Bansraj & Han Smit & Vadym Volosovych, 2020. "Can Private Equity Funds Act as Strategic Buyers? Evidence from Buy-and-Build Strategies," Tinbergen Institute Discussion Papers 20-041/IV, Tinbergen Institute.
    18. Jia, Ning & Wang, Dan, 2017. "Skin in the game: General partner capital commitment, investment behavior and venture capital fund performance," Journal of Corporate Finance, Elsevier, vol. 47(C), pages 110-130.
    19. Giot, Pierre & Hege, Ulrich & Schwienbacher, Armin, 2014. "Are novice private equity funds risk-takers? Evidence from a comparison with established funds," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 55-71.
    20. William Gornall & Ilya A. Strebulaev, 2017. "Squaring Venture Capital Valuations with Reality," NBER Working Papers 23895, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:124:y:2017:i:1:p:172-194. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505576 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.