Abstract

http://ssrn.com/abstract=2271690
 
 

Citations (4)



 


 



Do Private Equity Funds Game Returns?


Gregory W. Brown


University of North Carolina (UNC) at Chapel Hill - Finance Area

Oleg Gredil


University of North Carolina Kenan-Flagler Business School

Steven N. Kaplan


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

March 31, 2014

Fama-Miller Working Paper

Abstract:     
By their nature, private equity funds hold assets that are hard to value. This uncertainty in asset valuation gives rise to the potential for fund managers to manipulate reported net asset values (NAVs). Managers may have an incentive to game valuations in the short-run if these are used by investors to make decisions about commitments to subsequent funds managed by the same firm. Using a large dataset of buyout and venture funds, we test for the presence of reported NAV manipulation. We find evidence that some managers boost reported NAVs during times that fundraising activity is likely to occur. Those managers, however, are subsequently unable to raise a next fund, suggesting that investors see through the manipulation. In contrast, we find that top-performing funds under-report returns. This conservatism is consistent with these firms insuring against future bad luck that could make them appear as though they are NAV manipulators. Our results are robust to a variety of specifications and alternative explanations.

Number of Pages in PDF File: 58

Keywords: Private Equity, Venture Capital, Buyout Funds Mutual Funds, Institutional Investors

JEL Classification: G23, G24, G30

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Date posted: May 30, 2013 ; Last revised: August 30, 2014

Suggested Citation

Brown, Gregory W. and Gredil, Oleg and Kaplan, Steven N., Do Private Equity Funds Game Returns? (March 31, 2014). Fama-Miller Working Paper. Available at SSRN: http://ssrn.com/abstract=2271690 or http://dx.doi.org/10.2139/ssrn.2271690

Contact Information

Gregory W. Brown (Contact Author)
University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )
Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Oleg Gredil
University of North Carolina Kenan-Flagler Business School ( email )
McColl Building
Chapel Hill, NC 27599-3490
United States
Steven Neil Kaplan
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4513 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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