The Evolution of Private Equity Fund Value

Abstract

This paper provides the first large-sample analysis of buyout and venture capital fund values over their lifetimes. Specifically, we examine interim fund investment multiples (TVPIs), internal rates of return (IRRs), and direct-alphas based on the current reported net asset values (NAVs) at each quarter of a fund’s life. Using a sample of 1,400 mature buyout and VC funds, we find that the typical fund experiences a fall-off in returns after it is about 7 to 8 years old. However, the remaining performance is highly variable for funds of all ages and the dispersion in returns also tends to increase after funds are about 8 years old. We examine the cross-sectional determinants of remaining fund value and find that several fund-specific and market-wide factors determine future performance and that these vary by type and age of fund. For example, young funds tend to be harmed by high levels of market-wide dry powder whereas older funds appear to benefit.

Keywords: Private Equity, Venture Capital, Valuation, Net Asset Value, Performance, Secondary

JEL Classification: G11