Buy Low, Sell High? Do Private Equity Fund Managers Have Market Abilities?

43 Pages Posted: 26 Apr 2018 Last revised: 30 Apr 2018

See all articles by Tim Jenkinson

Tim Jenkinson

University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Stefan Morkoetter

University of St. Gallen - School of Finance

Thomas Wetzer

University of St. Gallen

Date Written: March 30, 2018

Abstract

When investors commit capital to a private equity fund, the money is not immediately invested but is called by the fund manager throughout an investment period of up to five years. This business model allows private equity fund managers to invest the committed capital at their own discretion, which gives them the flexibility to time the markets. Based on 5,366 private equity deals, which are benchmarked against around 11,000 transaction market multiples and 170,000 trading market multiples, we find evidence that on average private equity funds are able to add value by timing the markets. Throughout the holding period, private equity funds achieve on average a 0.5 EBITDA market multiple expansion. Market timing ability is not captured by performance measures such as the PME, yet it is a potential source of returns for investors.

Keywords: Private Equity, Mergers and Acquisitions, Value Creation, Market Timing

JEL Classification: G15, G20, G34

Suggested Citation

Jenkinson, Tim and Morkoetter, Stefan and Wetzer, Thomas, Buy Low, Sell High? Do Private Equity Fund Managers Have Market Abilities? (March 30, 2018). University of St.Gallen, School of Finance Research Paper No. 2018/13. Available at SSRN: https://ssrn.com/abstract=3169155 or http://dx.doi.org/10.2139/ssrn.3169155

Tim Jenkinson

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
United Kingdom
+44 1865 288916 (Phone)
+44 1865 288831 (Fax)

HOME PAGE: http://www.sbs.oxford.edu/timjenkinson

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Stefan Morkoetter (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Thomas Wetzer

University of St. Gallen ( email )

Dufourstrasse 50
St.Gallen, CH-9000
Switzerland

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