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What Do Private Equity Firms Say They Do?

Author

Listed:
  • Paul Gompers

    (Harvard Business School, Finance Unit)

  • Steven N. Kaplan

    (University of Chicago Booth School of Business)

  • Vladimir Mukharlyamov

    (Harvard University)

Abstract

We survey 79 private equity investors with combined AUM of over $750B about their practices in firm valuation, capital structure, governance, and value creation. Investors rely primarily on IRR and multiples to evaluate investments. Their LPs focus more on absolute performance. Capital structure choice is based equally on optimal trade-off and market timing considerations. PE investors anticipate adding value to portfolio companies, with a greater focus on increasing growth than on reducing costs. We also explore how the actions that PE managers say they take group into specific firm strategies and how those strategies are related to firm founder characteristics.

Suggested Citation

  • Paul Gompers & Steven N. Kaplan & Vladimir Mukharlyamov, 2015. "What Do Private Equity Firms Say They Do?," Harvard Business School Working Papers 15-081, Harvard Business School.
    • Handle: RePEc:hbs:wpaper:15-081
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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