The Performance of Private Equity Funds

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Abstract
Using a dataset of 1328 mature private equity funds, we find that performance estimates found in previous research and used as industry benchmark are overstated. We show that in commonly used samples, accounting values reported by mature funds for non-exited investments are substantial and we provide evidence that these mostly represent living dead investments. We also document a bias towards better performing funds in these data. After correcting for sample bias and overstated accounting values, average fund performance changes from a slight overperformance to a substantial underperformance of 3% per year with respect to the S&P 500. Assuming a typical fee structure, we find that gross-of-fees these funds outperform by 3% per year. We conclude that the stunning growth in the amount allocated to this asset class cannot be attributed to genuinely high past net performance. We 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.

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