Skill and Luck in Private Equity Performance

Arthur Korteweg, Morten Sørensen

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Abstrakt

Private equity (PE) performance is persistent, with PE firms consistently producing high (or low) net-of-fees returns. We use a new variance decomposition model to isolate three components of persistence. We find high long-term persistence: the spread in expected net-of-fee future returns between top and bottom quartile PE firms is 7–8 percentage points annually. This spread is estimated controlling for spurious persistence, which arises mechanically from the overlap of contemporaneous funds. Performance is noisy, however, making it difficult for investors to identify the PE funds with top quartile expected future performance and leaving little investable persistence.
OriginalsprogEngelsk
TidsskriftJournal of Financial Economics
Vol/bind124
Udgave nummer3
Sider (fra-til)535-562
Antal sider28
ISSN0304-405X
DOI
StatusUdgivet - jun. 2017

Emneord

  • Persistence
  • Private equity
  • Venture capital
  • Skill
  • Learning

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