The performance of private equity funds

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.Private equity funds; performance

Giants at the Gate: On the Cross-section of Private Equity Investment Returns

We examine the determinants of private equity returns using a newly constructed database of 7,500 investments worldwide over forty years. The median investment IRR (PME) is 21% (1.3), gross of fees. One in ten investments goes bankrupt, whereas one in four has an IRR above 50%. Only one in eight investments is held for less than 2 years, but such investments have the highest returns. The scale of private equity firms is a significant driver of returns: investments held at times of a high number of simultaneous investments underperform substantially. The median IRR is 36% in the lowest scale decile and 16% in the highest. Results survive robustness tests. Diseconomies of scale are linked to firm structure: independent firms, less hierarchical firms, and those with managers of similar professional backgrounds exhibit smaller diseconomies of scale.Private Equity, investment, LBOs, Buyouts

Hindsight Effects in Dollar-Weighted Returns

A growing number of studies use dollar-weighted returns as evidence that consistently bad timing substantially reduces investor returns, and that consequently the equity risk premium must be considerably lower than previously thought. These studies measure the impact of bad timing as the difference between the geometric mean return (corresponding to a buy-and-hold strategy) and the dollar-weighted return. However, the present paper demonstrates that this differential combines two distinct effects: The correlation of investor cashflows with (i) future asset returns, and (ii) past asset returns. Both correlations tend to alter the dollar-weighted return, but only the first affects investors’ expected wealth. The second generates a hindsight bias. This paper also derives a method which separates these two effects. The results show that the great majority of the return differential for mainstream US equities has been due to hindsight bias, and very little due to bad investor timing. Dollar-weighted returns have been low because aggregate investment flows reflect past returns rather than future returns, and these low returns should not lead us to adopt correspondingly low estimates of the risk premium. The decomposition method which is derived here also has many applications in other fields where dollar-weighted returns are used, such as project finance and investment management

Conformité des offres d’abonnement avec accès illimité à la loi du 26 mai 2011 relative au prix du livre numérique (La)

Le présent avis fait suite à une saisine de la ministre de la culture et de la communication qui a souhaité que soit clarifiée, au regard du cadre juridique français, la situation des offres d\u27abonnement avec accès illimité qui se développent dans le secteur du livre numérique. La loi du 17 mars 2014 relative à la consommation prévoit que le médiateur du livre, dont l\u27activité en matière de conciliation de litiges porte notamment sur l\u27application de la législation sur le prix du livre, « peut formuler des préconisations afin de faire évoluer les dispositions normatives relevant de son champ de compétences ». C\u27est dans ce cadre qu\u27intervient la présente saisine. La loi du 26 mai 2011, qui vise à réguler le marché du livre numérique au moyen d\u27un système de prix public fixé par l\u27éditeur, est-elle applicable aux services de lecture numérique accessibles sur abonnement ? Le cas échéant, ces modèles de commercialisation sont-ils conformes ou peuvent-ils être mis en conformité avec les dispositions de la loi

Investor Size and Division of Labor: Evidence from a Survey of Private Equity Limited Partners

Using a comprehensive survey, we show that investors with a larger capital allocation to private equity are more specialized and have a wider scope of due diligence and investment activities. Smaller investors tend to free ride on decisions made by larger investors. Other investor characteristics (experience, type, location, compensation structure, number of funds under management) play no role. These results are consistent with increasing returns to scale for due diligence, and with the savings generated by increased scale going into increasing scope rather than into cost reduction. Our findings provide an explanation for the observed outperformance of larger investors when it comes to investing in private equity

Private Equity Portfolio Company Fees

In private equity, General Partners (GPs) may receive fee payments from companies whose board they control. This paper describes the related contracts and shows that these fee payments sum up to $20 billion evenly distributed over the last twenty years, representing over 6% of the equity invested by GPs on behalf of their investors. Fees do not vary according to business cycles, company characteristics, or GP performance. Fees vary significantly across GPs and are persistent within GPs. GPs charging the least raised more capital post financial crisis. GPs that went public distinctively increased their fees prior to that event. We discuss how results can be explained by optimal contracting versus tunneling theories

An interferometric determination of the refractive part of optical constants for carbon and silver across soft X-ray absorption edges

International audienceInterferometric, direct determinations of the f 1 scattering factor near absorption edges in the soft x-ray range is demonstrated. The interferometric system, which is based on wave front division (no beam splitter) with plane mirrors only, produces a linear fringe pattern. The principle consists in direct measuring of the fringe shift occurring upon insertion of a sample into one interferometer arm, by means of a dedicated detection system. This provides the optical thickness, which in turn gives the f 1 factor, knowing either the sample mass per unit surface, or the sample thickness and density. With the sample being probed in transmission under near normal incidence, the determination of f 1 is not perturbed by the absorption part of the complex scattering factor. Therefore, f 1 data obtained here can be said new and independent with respect to those obtained previously, in the sense that they are obtained from a new, purely experimental technique, and are neither deduced from nor perturbed by absorption. The interferometer design used can be implemented in a very large spectral range. For demonstrating the ability of this interferometric system to provide such new f 1 data, a thin free-standing carbon foil near the K edge (from 4.1 to 4.65 nm, 302-267 eV), and a membrane-supported silver layer near an M edge (from 2.6 to 3.8 nm, 477-326 eV) were used as test objects

Estimating Private Equity Returns from Limited Partner Cash Flows

We introduce a methodology to estimate the historical time series of returns to investment in private equity. The approach is quite general, requires only an unbalanced panel of cash contributions and distributions accruing to limited partners, and is robust to sparse data. We decompose private equity returns into a component due to traded factors and a time-varying private equity premium. We find strong cyclicality in the premium component that differs according to fund type. The time-series estimates allow us to directly test theories about private equity cyclicality, and we find evidence in favor of the Kaplan and Strömberg (2009) hypothesis that capital market segmentation helps to determine the private equity premium

Estimating Private Equity Returns from Limited Partner Cash Flows

We introduce a methodology to estimate the historical time series of returns to investment in private equity. The approach is quite general, requires only an unbalanced panel of cash contributions and distributions accruing to limited partners, and is robust to sparse data. We decompose private equity returns into a component due to traded factors and a time-varying private equity premium. We find strong cyclicality in the premium component that differs according to fund type. The time-series estimates allow us to directly test theories about private equity cyclicality, and we find evidence in favor of the Kaplan and Strömberg (2009) hypothesis that capital market segmentation helps to determine the private equity premium