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Private Equity Performance: What Do We Know?

  • Robert S. Harris
  • Tim Jenkinson
  • Steven N. Kaplan

We present evidence on the performance of nearly 1400 U.S. private equity (buyout and venture capital) funds using a new research-quality dataset from Burgiss, sourced from over 200 institutional investors. Using detailed cash-flow data, we compare buyout and venture capital returns to the returns produced by public markets. We also compare the evidence from Burgiss to that derived from other commercial datasets - Venture Economics, Preqin and Cambridge Associates - as well as recent research. We find better buyout fund performance than has previously been documented. This in part reflects recently discovered problems with data provided by Venture Economics, upon which several previous studies had relied. Average U.S. buyout fund performance has exceeded that of public markets for most vintages for a long period of time. The outperformance versus the S&P 500 averages 20% to 27% over the life of the fund and more than 3% per year. Average U.S. venture capital funds, on the other hand, outperformed public equities in the 1990s, but have underperformed public equities in the 2000s. Using individual fund data, we explore the relationship between absolute measures of performance - internal rates of return (IRRs) and multiples of invested capital - and performance relative to public markets. Within a given vintage year, performance relative to public markets can be predicted well by a fund's multiple of invested capital and IRR, so we are able to estimate the performance relative to public markets that would have been derived from the other commercial datasets, had the required cash-flow data been available. Private equity performance in the other commercial sources - other than Venture Economics - is qualitatively similar to that we find using the Burgiss data.

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File URL: http://www.nber.org/papers/w17874.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17874.

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Date of creation: Feb 2012
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Publication status: published as “Private Equity Performance: What Do We Know?” with Robert Harris and Tim Jenkinson, Journal of Finance, forthcoming.
Handle: RePEc:nbr:nberwo:17874
Note: AP CF
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
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  1. Josh Lerner & Antoinette Schoar & Wan Wong, 2005. "Smart Institutions, Foolish Choices? The Limited Partner Performance Puzzle," NBER Working Papers 11136, National Bureau of Economic Research, Inc.
  2. Narasimhan Jegadeesh & Roman Kräussl & Joshua Pollet, 2009. "Risk and Expected Returns of Private Equity Investments: Evidence Based on Market Prices," NBER Working Papers 15335, National Bureau of Economic Research, Inc.
  3. Michael Ewens & Charles Jones & Matthew Rhodes-Kropf, . "The Price of Diversifiable Risk in Venture Capital and Private Equity," GSIA Working Papers 2012-E55, Carnegie Mellon University, Tepper School of Business.
  4. Kaplan, Steven N. & Strömberg, Per, 2009. "Leveraged Buyouts and Private Equity," SIFR Research Report Series 65, Institute for Financial Research.
  5. Andrew Metrick, 2010. "The Economics of Private Equity Funds," Review of Financial Studies, Society for Financial Studies, vol. 23(6), pages 2303-2341, June.
  6. Ludovic Phalippou & Oliver Gottschalg, 2009. "The Performance of Private Equity Funds," Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1747-1776, April.
  7. 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.
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