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Do Private Equity Funds Manipulate Reported Returns?

Author

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  • Gregory Brown

  • Oleg Gredil

  • Steven Kaplan

Abstract

Private equity funds hold assets that are hard to value. Managers may have an incentive to distort reported valuations if these are used by investors to decide on commitments to subsequent funds managed by the same firm. Using a large dataset of buyout and venture funds, this paper tests for the presence of reported return manipulation. It finds evidence that some under-performing managers boost reported returns during times when fundraising takes place. However, those managers are unlikely to raise a next fund, suggesting that investors see through much of the manipulation. In contrast, it also finds that top-performing funds likely understate their valuations. [Working Paper 22493]

Suggested Citation

  • Gregory Brown & Oleg Gredil & Steven Kaplan, 2016. "Do Private Equity Funds Manipulate Reported Returns?," Working Papers id:11205, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:11205
    Note: Institutional Papers
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    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
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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