70 Pages Posted: 30 May 2013 Last revised: 12 Aug 2016
Date Written: August 1, 2016
Private equity funds hold assets that are hard to value. Managers may have an incentive to distort reported valuations if these are used by investors to decide on commitments to subsequent funds managed by the same firm. Using a large dataset of buyout and venture funds, we test for the presence of reported return manipulation. We find evidence that some under-performing managers boost reported returns during times when fundraising takes place. However, those managers are unlikely to raise a next fund, suggesting that investors see through much of the manipulation. In contrast, we find that top-performing funds likely understate their valuations.
Keywords: Private Equity, Venture Capital, Buyout Funds Mutual Funds, Institutional Investors
JEL Classification: G23, G24, G30
Suggested Citation: Suggested Citation
Brown, Gregory W. and Gredil, Oleg and Kaplan, Steven N., Do Private Equity Funds Manipulate Reported Returns? (August 1, 2016). Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=2271690 or http://dx.doi.org/10.2139/ssrn.2271690