Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds
Robert S. Harris
University of Virginia - Darden School of Business
University of Oxford - Said Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Steven N. Kaplan
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
University of Oxford - Said Business School
April 1, 2013
Darden Business School Working Paper No. 2304808
The conventional wisdom for investors in private equity funds is to invest in partnerships that have performed well in the past, so-called top quartile funds. This conventional wisdom is based on the belief that performance in private equity persists across funds for the same partnership. We present new evidence on the persistence of U.S. private equity (buyout and venture capital) funds using a new research-quality dataset from Burgiss, sourced from over 200 institutional investors. Using detailed cash-flow data for funds, we study the persistence of buyout and venture capital fund performance of the same general partners across different funds. We pay particular attention to persistence pre- and post-2000. Previous research, studying largely pre-2000 data, has found strong persistence for both buyout and venture capital firms.
We confirm the previous findings on persistence in pre-2000 funds. There is significant persistence for buyout funds and, particularly for venture funds.
Post-2000, we find mixed evidence of persistence in buyout funds. When funds are sorted by the quartile of performance of their previous funds, performance of the current fund is statistically indistinguishable regardless of quartile. Returns for partnerships in all previous fund quartiles, including the bottom, exceed those of public markets as measured by the S&P 500. At the same time, however, regression estimates do find that current fund performance is significantly related to previous fund performance.
Post-2000, we find that performance in venture capital funds remains as statistically and economically persistent as pre-2000. Partnerships whose previous funds are below the median for their vintage year subsequently tend to be below median and have returns below those of the public markets (S&P 500). Partnerships in the top two quartiles tend to stay above the median and their returns exceed those of the public markets.
Number of Pages in PDF File: 35
Keywords: private equity, venture capital
JEL Classification: G2, G11working papers series
Date posted: August 2, 2013
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