Does Risk Explain Persistence in Private Equity Performance?

55 Pages Posted: 27 Apr 2015 Last revised: 2 Jun 2016

See all articles by Axel Buchner

Axel Buchner

University of Passau; CEPRES - Center of Private Equity Research

Abdul Mohamed

Cranfield University - School of Management

Armin Schwienbacher

SKEMA Business School

Date Written: May 19, 2016

Abstract

In this paper, we investigate whether fund-specific risk helps explain performance persistence in private equity funds, using detailed deal-level cash flow information at both the fund and deal levels. We further extend existing findings to international evidence on buyout and venture capital (VC) by testing the impact of various risk measures. We find that risk is an important driver of performance persistence and helps explain such persistence. We also find persistence in risk in private equity, in particular persistence in downside volatility for both buyout and VC funds. Finally, we document that fund performance is more strongly affected by fund managers able to minimize downside losses than selecting outperforming portfolio companies. This effect is strongest for buyout but, to a weaker extent, also holds for VC. Our results are further robust to controlling for legal factors at the country level.

Keywords: private equity; performance; venture capital; buyout; risk; persistence

JEL Classification: G24; G23

Suggested Citation

Buchner, Axel and Mohamed, Abdul and Schwienbacher, Armin, Does Risk Explain Persistence in Private Equity Performance? (May 19, 2016). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2599331 or http://dx.doi.org/10.2139/ssrn.2599331

Axel Buchner (Contact Author)

University of Passau ( email )

Innstraße 27
Passau, 94030
Germany

CEPRES - Center of Private Equity Research ( email )

Max-Joseph-Strasse 7
Munich, 80333
Germany

Abdul Mohamed

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom

Armin Schwienbacher

SKEMA Business School ( email )

Lille
France

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