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The Performance of Private Equity Funds

Author

Listed:
  • Oliver Gottschalg

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Ludovic Phalippou

    (UvA - University of Amsterdam [Amsterdam] = Universiteit van Amsterdam)

Abstract

The authors contend that the performance of private equity funds (PEFs) reported by prior studies and industry associations is overstated for two reasons--inflated accounting valuation of ongoing investments and a bias toward better-performing funds. The findings in this article show that PEFs outperform the S&P 500 Index by 3 percent on a gross-of-fees basis. But on a net-of-fees basis, PEFs underperform by 3 percent, and adjusting for risk makes it even worse at 6 percent underperformance per year. The high fee structure is the major contributing factor for PEF underperformance. Despite performance weaknesses, certain investors invest in PEFs for side benefits and motives beyond maximizing returns.

Suggested Citation

  • Oliver Gottschalg & Ludovic Phalippou, 2009. "The Performance of Private Equity Funds," Post-Print hal-00458110, HAL.
    • Handle: RePEc:hal:journl:hal-00458110
    DOI: 10.2469/dig.v39.n4.7
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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.
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    More about this item

    Keywords

    Alternative Investments; Private Equity; Performance Measurement and Evaluation; Performance Measurement; Performance Attribution;
    All these keywords.

    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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