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Do Private Equity Managers Raise Funds on (Sur)real Returns? Evidence from Deal-Level Data

Published online by Cambridge University Press:  13 September 2022

Niklas Hüther Open the ORCID record for Niklas Hüther [Opens in a new window]
Niklas Hüther*
Affiliation:
Indiana University Kelley School of Business
*
[email protected]
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Abstract

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Recent studies on agency problems in private equity fueled the suspicion that fund managers strategically manipulate performance estimates around fundraising times. While these studies use aggregated portfolio data, this paper offers the first analysis of “window dressing” in private equity based on deal-level performance. In contrast to previous findings of a smoking gun at the fund level, I do not find any evidence of inflated performance at the deal level. Fund performance peaks are driven by a cohort effect whereby late investments are made under pressure before fundraising and have lower returns than those made earlier in the fund’s life.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 7 , November 2023 , pp. 2959 - 2992
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

I thank Jennifer Conrad (the editor) and Brian Rountree (the referee) for their thoughtful comments and suggestions. I am grateful for valuable advice from David Robinson, Lukas Schmid, Alon Brav, Per Strömberg, Chuck Trzcinka, Roberto Steri, Merih Sevilir, Matthias Kahl, Adriano Rampini, Carlos Avenancio-León, and Jonathan Zandberg. I also thank an anonymous limited partner, seminar participants at Duke University, Indiana University, Erasmus University Rotterdam, University of Nebraska—Lincoln, Southern Methodist University, as well as seminar participants at the 2016 European Finance Association Meetings, the 2016 PERC conference, and the 2017 Conference on Entrepreneurial Financial Management at ESMT Berlin.

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