74 Pages Posted: 30 May 2013 Last revised: 7 Jul 2017
Date Written: April 30, 2017
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 underperforming managers inflate reported returns during times when fundraising takes place. However, those managers are less likely to raise a next fund, suggesting that investors can see through the manipulation on average. In contrast, we find that top-performing funds likely understate their valuations. A simple theoretical framework rationalizes our empirical results as well as those of related papers.
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? (April 30, 2017). Journal of Financial Economics (JFE), Forthcoming; Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=2271690 or http://dx.doi.org/10.2139/ssrn.2271690