The Performance of Private Equity Funds

Authors: Phalippou, Ludovic; Gottschalg, Oliver

Source: Review of Financial Studies, Volume 22, Number 4, 20 April 2009 , pp. 1747-1776(30)

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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.

Keywords: G23; G24

Document Type: Research article

DOI: http://dx.doi.org/10.1093/rfs/hhn014

Publication date: 2009-04-20

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The Review of Financial Studies is a major forum for the promotion and wide dissemination of significant new research in financial economics. As reflected by its broadly based editorial board, the Review balances theoretical and empirical contributions. The primary criteria for publishing a paper are its quality and importance to the field of finance, without undue regard to its technical difficulty. Finance is interpreted broadly to include the interface between finance and economics. The Review is sponsored by The Society for Financial Studies. The editors of the Review and officers of the Society are elected for limited terms.