Measuring Institutional Investors’ Skill at Making Private Equity Investments
Charles A. Dice Center Working Paper No. 2016-14
80 Pages Posted: 21 Aug 2016 Last revised: 5 Oct 2017
Date Written: October 4, 2017
Using a large sample of institutional investors’ investments in private equity funds raised between 1991 and 2011, we estimate the extent to which investors’ skill affects their returns. Bootstrap analyses show that the variance of actual performance is higher than would be expected by chance, suggesting that some investors consistently outperform. Extending the Bayesian approach of Korteweg and Sorensen (2017), we estimate that a one standard deviation increase in skill leads to an increase in annual returns of between one and two percentage points. These results are stronger in the earlier part of the sample period and for venture funds.
Keywords: Institutional Investors, Private Equity, Investment Skill, Markov Chain Monte Carlo
JEL Classification: G11, G23, G24
Suggested Citation: Suggested Citation