The Performance of Private Equity Funds
Using a unique and comprehensive dataset, we show that the sample of mature private equityfunds used in previous research and as an industry benchmark is biased towards betterperforming funds. We also show that accounting values reported by these mature funds for nonexitedinvestments are substantial and we provide evidence that they mostly represent living deadinvestments. After correcting for sample bias and overstated accounting values, average fundperformance changes from slight overperformance to substantial underperformance of -3.83% peryear with respect to the S&P 500. Assuming a typical fee structure, we find that gross-of-feesthese funds outperform by 2.96% per year. We conclude that the stunning growth in the amountallocated to this asset class cannot be attributed to genuinely high past performance. We discussseveral potentially misleading aspects of standard performance reporting and discuss some of theadded benefits of investing in private equity funds as a first step towards an explanation for ourresults.
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|Date of creation:||2006|
|Publication status:||Published in Cahier de recherche - Working Paper of the INSEAD-Wharton Alliance. 2006|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00125912|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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