Skill and Luck in Private Equity Performance

69 Pages Posted: 3 Apr 2014 Last revised: 16 Dec 2015

See all articles by Arthur G. Korteweg

Arthur G. Korteweg

University of Southern California - Marshall School of Business

Morten Sorensen

Copenhagen Business School; Columbia Business School; Centre for Economic Policy Research (CEPR)

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Date Written: October 29, 2015


A striking feature of private equity (PE) is that performance is persistent, with many PE firms consistently producing high (or low) returns net of fees. We use a new variance decomposition model to isolate three components of performance persistence. We find a large amount of long-term persistence: the spread in expected net-of-fees future returns between top- and bottom-quartile PE firms is 7 to 8 percentage points annually. This spread is after controlling for substantial spurious persistence, which arises mechanically from the overlap of contemporaneous funds. Performance is noisy, however, and we find little investable persistence, meaning that it is difficult for investors in PE funds to identify top-quartile funds with top-quartile expected future performance.

Keywords: Persistence, private equity, venture capital, skill, learning

JEL Classification: G11, G12, G24, C11

Suggested Citation

Korteweg, Arthur G. and Sørensen, Morten, Skill and Luck in Private Equity Performance (October 29, 2015). Rock Center for Corporate Governance at Stanford University Working Paper No. 179. Available at SSRN: or

Arthur G. Korteweg (Contact Author)

University of Southern California - Marshall School of Business ( email )

3670 Trousdale Parkway
Los Angeles, CA 90089
United States


Morten Sørensen

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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