Do Private Equity Funds Manipulate Reported Returns?
Gregory W. Brown
University of North Carolina (UNC) at Chapel Hill - Finance Area
Tulane University - Finance Area
Steven N. Kaplan
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
August 1, 2016
Fama-Miller Working Paper
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.
Number of Pages in PDF File: 70
Keywords: Private Equity, Venture Capital, Buyout Funds Mutual Funds, Institutional Investors
JEL Classification: G23, G24, G30
Date posted: May 30, 2013 ; Last revised: August 12, 2016