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Do Private Equity Fund Managers Earn Their Fees? Compensation, Ownership, and Cash Flow PerformanceDavid T. RobinsonDuke University - Fuqua School of Business; National Bureau of Economic Research (NBER) Berk A. SensoyOhio State University - Fisher College of Business May 30, 2013 AFA 2012 Chicago Meetings Paper Charles A. Dice Center Working Paper No. 2011-14 UCD & CalPERS Sustainability & Finance Symposium 2013 Fisher College of Business Working Paper No. 2011-03-014 Abstract: We study the relations between management contract terms and performance in private equity using new data for 837 funds from 1984-2010. We nd no evidence that higher fees or lower managerial ownership are associated with lower net-of-fee performance. Nevertheless, compensation rises and shifts to performance-insensitive components during fundraising booms. Further, the behavior of distributions around contractual fee triggers is consistent with an underlying agency conflict between investors and fund managers. Our evidence suggests that managers with higher fees deliver higher gross performance, and highlights that agency costs are an inevitable consequence of the information frictions endemic to agency relationships.
Number of Pages in PDF File: 48 Keywords: Private Equity, Cash Flows, Performance, Fees, Carried Interest, Ownership JEL Classification: G01, G23, G24 working papers seriesDate posted: July 22, 2011 ; Last revised: June 1, 2013Suggested CitationContact Information
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