Private Equity Fund Debt: Capital Flows, Performance, and Agency Costs

52 Pages Posted: 27 Jun 2019 Last revised: 28 May 2020

See all articles by James F. Albertus

James F. Albertus

Carnegie Mellon University - David A. Tepper School of Business

Matthew Denes

Carnegie Mellon University - Tepper School of Business

Date Written: May 26, 2020

Abstract

A subscription line of credit (SLC) is debt issued to a private equity fund and used on a continuing basis. Using new data on U.S. buyout funds, we show that when funds use subscription lines of credit they call less capital. We find that funds using SLCs have substantial distortions in performance measures sensitive to cash flow timing. SLCs are more common among poorly performing funds and increase carried interest along both the extensive and intensive margins. These results highlight the agency costs of SLCs arising from an underlying agency conflict between fund managers and investors.

Keywords: Private equity, buyout fund, subscription line of credit, capital call, performance, agency conflict

JEL Classification: E22, G23, G32

Suggested Citation

Albertus, James F. and Denes, Matthew, Private Equity Fund Debt: Capital Flows, Performance, and Agency Costs (May 26, 2020). Available at SSRN: https://ssrn.com/abstract=3410076 or http://dx.doi.org/10.2139/ssrn.3410076

James F. Albertus

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Matthew Denes (Contact Author)

Carnegie Mellon University - Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

HOME PAGE: http://sites.google.com/site/matthewdenes

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