Do Private Equity Funds Manipulate Reported Returns?

70 Pages Posted: 30 May 2013 Last revised: 12 Aug 2016

Gregory W. Brown

University of North Carolina (UNC) at Chapel Hill - Finance Area

Oleg Gredil

Tulane University - Finance Area

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: August 1, 2016

Abstract

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

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

Gregory W. Brown (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Oleg Gredil

Tulane University - Finance Area ( email )

7 McAlister Dr
New Orleans, LA 70118
United States

Steven Neil Kaplan

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4513 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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