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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)

  • L. Phalippou

Abstract

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.

Suggested Citation

  • Oliver Gottschalg & L. Phalippou, 2006. "The Performance of Private Equity Funds," Post-Print halshs-00120987, HAL.
    • Handle: RePEc:hal:journl:halshs-00120987
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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

    Performance; Private Equity Funds;

    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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