Abstract
A striking feature of private equity (PE) is that performance is persistent, with many PE firms consistently producing high (or low) returns net of fees. We use a new variance decomposition model to isolate three components of performance persistence. We find a large amount of long-term persistence: the spread in expected net-of-fees future returns between top- and bottom-quartile PE firms is 7 to 8 percentage points annually. This spread is after controlling for substantial spurious persistence, which arises mechanically from the overlap of contemporaneous funds. Performance is noisy, however, and we find little investable persistence, meaning that it is difficult for investors in PE funds to identify top-quartile funds with top-quartile expected future performance.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
