Private Equity Performance: What Do We Know?

51 Pages Posted: 24 Feb 2012

See all articles by Robert S. Harris

Robert S. Harris

University of Virginia - Darden School of Business

Tim Jenkinson

University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); University of Chicago - Polsky Center for Entrepreneurship

Multiple version iconThere are 2 versions of this paper

Date Written: February 2012

Abstract

We present evidence on the performance of nearly 1400 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, we compare buyout and venture capital returns to the returns produced by public markets. We also compare the evidence from Burgiss to that derived from other commercial datasets – Venture Economics, Preqin and Cambridge Associates – as well as recent research. We find better buyout fund performance than has previously been documented. This in part reflects recently discovered problems with data provided by Venture Economics, upon which several previous studies had relied. Average U.S. buyout fund performance has exceeded that of public markets for most vintages for a long period of time. The outperformance versus the S&P 500 averages 20% to 27% over the life of the fund and more than 3% per year. Average U.S. venture capital funds, on the other hand, outperformed public equities in the 1990s, but have underperformed public equities in the 2000s. Using individual fund data, we explore the relationship between absolute measures of performance – internal rates of return (IRRs) and multiples of invested capital – and performance relative to public markets. Within a given vintage year, performance relative to public markets can be predicted well by a fund’s multiple of invested capital and IRR, so we are able to estimate the performance relative to public markets that would have been derived from the other commercial datasets, had the required cash-flow data been available. Private equity performance in the other commercial sources – other than Venture Economics – is qualitatively similar to that we find using the Burgiss data.

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Suggested Citation

Harris, Robert S. and Jenkinson, Tim and Kaplan, Steven Neil, Private Equity Performance: What Do We Know? (February 2012). NBER Working Paper No. w17874, Available at SSRN: https://ssrn.com/abstract=2010405

Robert S. Harris (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
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HOME PAGE: http://www.darden.virginia.edu/faculty/harris.htm

Tim Jenkinson

University of Oxford - Said Business School ( email )

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Oxford, OX1 1HP
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+44 1865 288831 (Fax)

HOME PAGE: http://www.sbs.oxford.edu/timjenkinson

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Steven Neil Kaplan

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
United States
773-702-4513 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

University of Chicago - Polsky Center for Entrepreneurship

Chicago, IL 60637
United States

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