Catering and Return Manipulation in Private Equity

85 Pages Posted: 18 Oct 2022 Last revised: 16 Dec 2022

See all articles by Blake Jackson

Blake Jackson

University of Florida - Department of Finance, Insurance and Real Estate

David C. Ling

University of Florida - Hough Graduate School of Business Administration

Andy Naranjo

University of Florida

Date Written: October 11, 2022

Abstract

We provide evidence that private equity (PE) fund managers manipulate returns to cater to their investors. Using a large dataset of PE real estate funds, we show PE fund managers overstate returns if they oversee a larger share of their investors' assets, and doing so has a more significant impact on investors' reported returns. Additional results are inconsistent with models in which investors punish or are deceived by manipulations. In contrast, our results highlight an underlying tension in PE performance: the "phony happiness” some PE investors receive from overstated and smoothed interim returns due to agency frictions within their organizations.

Keywords: Private Equity, Performance Manipulation

JEL Classification: G11, G24, G30

Suggested Citation

Jackson, Blake and Ling, David C. and Naranjo, Andy, Catering and Return Manipulation in Private Equity (October 11, 2022). Available at SSRN: https://ssrn.com/abstract=4244467 or http://dx.doi.org/10.2139/ssrn.4244467

Blake Jackson (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/view/blakejackson/home

David C. Ling

University of Florida - Hough Graduate School of Business Administration ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States
(352) 392-0153 (Phone)
(352) 392-0301 (Fax)

Andy Naranjo

University of Florida ( email )

Gainesville, FL
United States

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