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Limited Partner Performance and the Maturing of the Private Equity Industry

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  • Berk A. Sensoy
  • Yingdi Wang
  • Michael S. Weisbach

Abstract

We evaluate the performance of limited partners' (LPs) private equity investments over time. Using a sample of 14,380 investments by 1,852 LPs in 1,250 buyout and venture funds started between 1991 and 2006, we find that the superior performance of endowment investors in the 1991-1998 period, documented in prior literature, is mostly due to their greater access to the top-performing venture capital partnerships. In the subsequent 1999-2006 period, endowments no longer outperform, and neither have greater access to funds that are likely to restrict access nor make better investment selections than other types of institutional investors. We discuss how these results are consistent with the general maturing of the industry, as private equity has transitioned from a niche, poorly understood area to a ubiquitous part of institutional investors' portfolios.

Suggested Citation

  • Berk A. Sensoy & Yingdi Wang & Michael S. Weisbach, 2013. "Limited Partner Performance and the Maturing of the Private Equity Industry," NBER Working Papers 18793, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:18793
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    References listed on IDEAS

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    1. 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.
    2. David T. Robinson & Berk A. Sensoy, 2013. "Do Private Equity Fund Managers Earn Their Fees? Compensation, Ownership, and Cash Flow Performance," The Review of Financial Studies, Society for Financial Studies, vol. 26(11), pages 2760-2797.
    3. Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254.
    4. Robinson, David T. & Sensoy, Berk A., 2016. "Cyclicality, performance measurement, and cash flow liquidity in private equity," Journal of Financial Economics, Elsevier, vol. 122(3), pages 521-543.
    5. Jonathan B. Berk & Richard C. Green, 2004. "Mutual Fund Flows and Performance in Rational Markets," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1269-1295, December.
    6. Josh Lerner & Antoinette Schoar & Jialan Wang, 2008. "Secrets of the Academy: The Drivers of University Endowment Success," Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 207-222, Summer.
    7. Josh Lerner & Antoinette Schoar & Wan Wongsunwai, 2007. "Smart Institutions, Foolish Choices: The Limited Partner Performance Puzzle," Journal of Finance, American Finance Association, vol. 62(2), pages 731-764, April.
    8. Shourun Guo & Edith S. Hotchkiss & Weihong Song, 2011. "Do Buyouts (Still) Create Value?," Journal of Finance, American Finance Association, vol. 66(2), pages 479-517, April.
    9. Yael V. Hochberg & Alexander Ljungqvist & Annette Vissing-Jørgensen, 2014. "Informational Holdup and Performance Persistence in Venture Capital," The Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 102-152, January.
    10. Ji-Woong Chung & Berk A. Sensoy & Léa Stern & Michael S. Weisbach, 2012. "Pay for Performance from Future Fund Flows: The Case of Private Equity," The Review of Financial Studies, Society for Financial Studies, vol. 25(11), pages 3259-3304.
    11. Gompers, Paul & Lerner, Josh, 1999. "An analysis of compensation in the U.S. venture capital partnership," Journal of Financial Economics, Elsevier, vol. 51(1), pages 3-44, January.
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    13. repec:oup:rfinst:v:25:y::i:11:p:3259-3304 is not listed on IDEAS
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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

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