Paying for Performance in Private Equity: Evidence from VC Partnerships

52 Pages Posted: 18 Dec 2017 Last revised: 19 Dec 2017

See all articles by Niklas Hüther

Niklas Hüther

Indiana University - Kelley School of Business

David T. Robinson

Fuqua School of Business, Duke University; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Soenke Sievers

Paderborn University

Thomas Hartmann-Wendels

University of Cologne - Department of Banking

Date Written: December 13, 2017

Abstract

We offer the first empirical analysis connecting the timing of general partner (GP) compensation to private equity fund performance. Using detailed information on limited partnership agreements between private equity limited and general partners, we find that "GP-friendly" contracts - agreements that pay general partners on a deal-by-deal basis instead of withholding carried interest until a benchmark return has been earned - are associated with higher returns, both gross and net of fees. This is robust to measures of performance persistence, time period effects, and other contract terms, and is related to exit-timing incentives. Timing practices balance GP incentives against limited partner downside protection.

Keywords: venture capital, compensation, private equity, VC partnership, pay-performance relation

JEL Classification: G10, G23, G24

Suggested Citation

Hüther, Niklas and Robinson, David T. and Sievers, Soenke and Hartmann-Wendels, Thomas, Paying for Performance in Private Equity: Evidence from VC Partnerships (December 13, 2017). Available at SSRN: https://ssrn.com/abstract=3087320 or http://dx.doi.org/10.2139/ssrn.3087320

Niklas Hüther (Contact Author)

Indiana University - Kelley School of Business ( email )

1275 E 10th St
Bloomington, IN 47405
United States

David T. Robinson

Fuqua School of Business, Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0120
United States
919-660-8023 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Soenke Sievers

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

HOME PAGE: http://www.upb.de/accounting

Thomas Hartmann-Wendels

University of Cologne - Department of Banking ( email )

Albertus-Magnus-Platz
D-50923 Cologne
Germany

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