Les Cahiers de Recherche - HEC Paris
The performance of private equity funds
() and Phalippou Ludovic
Abstract: Using a unique and comprehensive dataset, the authors show
that the sample of mature private equity funds used in previous research
and as an industry benchmark is biased towards better performing funds.
They also show that accounting values reported by these mature funds for
non exited investments are substantial and they provide evidence that they
mostly represent living dead investments. After correcting for sample bias
and overstated accounting values, average fund performance changes from
slight over performance to substantial underperformance of -3.83% per year
with respect to the S&P 500. Assuming a typical fee structure, they find
that gross-of-fees these funds outperform by 2.96% per year. The authors
conclude that the stunning growth in the amount allocated to this asset
class cannot be attributed to genuinely high past performance. They discuss
several potentially misleading aspects of standard performance reporting
and discuss some of the added benefits of investing in private equity funds
as a first step towards an explanation for our results.
Keywords: Private equity funds; performance; (follow links to similar papers)
JEL-Codes: G23; G24; (follow links to similar papers)
59 pages, September 1, 2006
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