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The performance of private equity funds

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  • Oliver, Gottschalg

    ()

  • Ludovic, Phalippou

    ()

Abstract

Using a unique and comprehensive dataset, the authors show that the sample of mature private equity funds used in previous research and as an industry benchmark is biased towards better performing funds. They also show that accounting values reported by these mature funds for non exited investments are substantial and they provide evidence that they mostly represent living dead investments. After correcting for sample bias and overstated accounting values, average fund performance changes from slight over performance to substantial underperformance of -3.83% per year with respect to the S&P 500. Assuming a typical fee structure, they find that gross-of-fees these funds outperform by 2.96% per year. The authors conclude that the stunning growth in the amount allocated to this asset class cannot be attributed to genuinely high past performance. They discuss several potentially misleading aspects of standard performance reporting and discuss some of the added benefits of investing in private equity funds as a first step towards an explanation for our results.

Suggested Citation

  • Oliver, Gottschalg & Ludovic, Phalippou, 2006. "The performance of private equity funds," Les Cahiers de Recherche 852, HEC Paris.
  • Handle: RePEc:ebg:heccah:0852
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    File URL: http://www.hec.fr/var/fre/storage/original/application/7bb9d48dfdcb4b9334b7b3f356ea9039.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Steven Kaplan & Antoinette Schoar, 2003. "Private Equity Performance: Returns, Persistence and Capital," NBER Working Papers 9807, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Private equity funds; performance;

    JEL classification:

    • 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

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