Long Goodbyes: How do Private Equity Funds Manage Sell-Downs after Initial Public Offerings?

Abstract

We analyze how private equity funds (GPs) sell down their stakes in companies they take public. GPs earn private equity management fees and carried interest on public equity holdings. The average duration of post-IPO holdings is 3 years, whereas lockups expire after 6 months. PE-backed IPOs perform well during the lockup, but we find no evidence that GPs add value for investors through the timing of their aftermarket sell-down strategies. GPs appear reluctant to sell losers, consistent with behavioral biases. We find that long goodbyes are more likely when the fund is performing better, and result in higher payments to GPs.

Keywords: Private Equity, Initial Public Offerings

JEL Classification: G23