Cyclicality, Performance Measurement, and Cash Flow Liquidity in Private Equity

53 Pages Posted: 28 Dec 2010 Last revised: 19 Dec 2015

David T. Robinson

Fuqua School of Business, Duke University; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Berk A. Sensoy

Ohio State University - Fisher College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 9, 2015

Abstract

We study the liquidity properties of private equity cash flows using data from 837 buyout and venture capital funds from 1984-2010. Most cash flow variation at a point in time is diversifiable – either idiosyncratic to a given fund or explained by the fund’s age. Both capital calls and distributions also have a procyclical systematic component. Distributions are more sensitive than calls, implying procyclical aggregate net cash flows. A consequence is that the well-known finding that funds raised in hot markets underperform in absolute terms is sharply attenuated when comparing to public equities. Consistent with a liquidity premium for calling capital in bad times, we find that funds with a relatively high propensity to do so perform better in both absolute and relative terms. Venture capital cash flows and performance are considerably more cyclical than buyout, and the links between cyclical cash flows and performance are likewise stronger.

Keywords: Liquidity, cash flows, business cycles, performance, private equity, venture capital

JEL Classification: G12, G23, G24

Suggested Citation

Robinson, David T. and Sensoy, Berk A., Cyclicality, Performance Measurement, and Cash Flow Liquidity in Private Equity (December 9, 2015). Journal of Financial Economics (JFE), Forthcoming; Charles A. Dice Center Working Paper No. 2010-021; Fisher College of Business Working Paper No. 2010-03-021. Available at SSRN: https://ssrn.com/abstract=1731603 or http://dx.doi.org/10.2139/ssrn.1731603

David T. Robinson

Fuqua School of Business, Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0120
United States
919-660-8023 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Berk A. Sensoy (Contact Author)

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Paper statistics

Downloads
2,324
Rank
4,135
Abstract Views
15,308