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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 performance of private equity funds as reported by industry associations and previous research is overstated. A large part of performance is driven by inflated accounting valuation of ongoing investments and we find a bias toward better performing funds in the data. We find an average net-of-fees fund performance of 3% per year below that of the S&P 500. Adjusting for risk brings the underperformance to 6% per year. We estimate fees to be 6% per year. We discuss several misleading aspects of performance reporting and some side benefits as a first step toward an explanation.

Suggested Citation

  • Oliver Gottschalg & Ludovic Phalippou, 2009. "The Performance of Private Equity Funds," Post-Print hal-00458111, HAL.
    • Handle: RePEc:hal:journl:hal-00458111
    DOI: 10.1093/rfs/hhn014
    as

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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 N. Kaplan & Antoinette Schoar, 2005. "Private Equity Performance: Returns, Persistence, and Capital Flows," Journal of Finance, American Finance Association, vol. 60(4), pages 1791-1823, August.
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    More about this item

    Keywords

    Performance; Private equity;

    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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