How Do Private Equity Fees Vary Across Public Pensions?
65 Pages Posted: 24 Feb 2020 Last revised: 15 Jul 2020
Date Written: June 30, 2020
We document large variation in net-of-fee performance across public pension funds investing in the same private equity fund. In aggregate, these differences imply that the pensions in our sample would have earned $44 billion more – equivalent to $8.50 more per $100 invested – had they each received the best observed terms in their respective funds. There are also large pension-effects in the sense that some pensions systematically pay more fees than others when investing in the same fund. With better terms, the 95th percentile pension would have earned $14.91 more per $100 invested compared to $1.12 for the 5th percentile pension. Pension characteristics such as commitment size, overall size, relationships with fund managers, and governance account for a modest amount of the pension effects, meaning similar pensions consistently pay different fees.
Keywords: Pension Funds, Private Equity Fees, Price Dispersion, Public Finance
JEL Classification: G23, G24, G51
Suggested Citation: Suggested Citation