Do Private Equity Managers Raise Funds on (Sur)real Returns? Evidence from Deal-Level Data

Abstract

Recent studies on agency problems in private equity have fueled the suspicion that fund managers strategically manipulate performance estimates around fundraising times. While these studies rely on aggregated portfolio data, this paper offers the first empirical analysis of "window dressing'' in private equity based on quarterly reported deal-level performance. In contrast to previous findings of a smoking gun at the fund level, I do not find any evidence of inflated performance at the deal level. Observed interim peaks in valuation at the fund level result from lower returns on deals made under pressure to invest unspent capital closer to fundraising.

Keywords: Private Equity, Performance Manipulation, Financial Intermediation, Fundraising

JEL Classification: G10, G20, G23, G24