Abstract

http://ssrn.com/abstract=2419299
 


 



Skill and Luck in Private Equity Performance


Arthur G. Korteweg


University of Southern California - Marshall School of Business

Morten Sorensen


Copenhagen Business School; Columbia Business School; Centre for Economic Policy Research (CEPR)

October 29, 2015

Rock Center for Corporate Governance at Stanford University Working Paper No. 179

Abstract:     
A striking feature of private equity (PE) is that performance is persistent, with many PE firms consistently producing high (or low) returns net of fees. We use a new variance decomposition model to isolate three components of performance persistence. We find a large amount of long-term persistence: the spread in expected net-of-fees future returns between top- and bottom-quartile PE firms is 7 to 8 percentage points annually. This spread is after controlling for substantial spurious persistence, which arises mechanically from the overlap of contemporaneous funds. Performance is noisy, however, and we find little investable persistence, meaning that it is difficult for investors in PE funds to identify top-quartile funds with top-quartile expected future performance.

Number of Pages in PDF File: 69

Keywords: Persistence, private equity, venture capital, skill, learning

JEL Classification: G11, G12, G24, C11


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Date posted: April 3, 2014 ; Last revised: December 16, 2015

Suggested Citation

Korteweg, Arthur G. and Sorensen, Morten, Skill and Luck in Private Equity Performance (October 29, 2015). Rock Center for Corporate Governance at Stanford University Working Paper No. 179. Available at SSRN: http://ssrn.com/abstract=2419299 or http://dx.doi.org/10.2139/ssrn.2419299

Contact Information

Arthur G. Korteweg (Contact Author)
University of Southern California - Marshall School of Business ( email )
3670 Trousdale Parkway
Los Angeles, CA 90089
United States
HOME PAGE: http://www-bcf.usc.edu/~korteweg/

Morten Sørensen
Copenhagen Business School ( email )
Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark
Columbia Business School ( email )
3022 Broadway
New York, NY 10027
United States

Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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