Interim Fund Performance and Fundraising in Private Equity

Abstract

General partners (GPs) in private equity (PE) report the performance of an existing fund while raising capital for a follow-on fund. Interim performance has large effects on fundraising outcomes; the impact is greatest when backed by exits and for low reputation GPs. Faced with these incentives, GPs time their fundraising to coincide with periods of peak performance through two strategies: “exit and fundraise” and “NAV management.” Consistent with the former, performance peaks are greatest for funds with high realization rates. Consistent with the latter, low reputation GPs with low realization rates also experience performance peaks and erosions in performance post fundraising.

Keywords: private equity, venture capital, buyouts, fundraising, fund evaluation, fund returns, institutional investors

JEL Classification: G10, G20, G24, G28, G29