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

Abstract

Recent studies on agency problems in private equity fueled the suspicion that fund managers strategically manipulate performance estimates around fundraising times. While these studies use aggregated portfolio data, this paper offers the first analysis of "window dressing" in private equity based on 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. Fund performance peaks are driven by a cohort effect whereby late investments are made under pressure before fundraising and have lower returns than those made earlier in the fund’s life.

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

JEL Classification: G10, G20, G23, G24