What Drives Private-Equity Performance Persistence? New Deal-Level Evidence
55 Pages Posted: 24 Jul 2024
Abstract
We examine the performance persistence of private-equity (PE) deals using a novel approach that decomposes deal performance into five components of portfolio-company performance. Based on deal-level data during 1974-2017, we find that performance and persistence are significantly driven by the ‘leveraging’ component reflecting portfolio companies’ ability to bear high debt burdens at investment and reduce leverage before PE backers exit. Performance persistence declines during (2000-2007) but resurges post-2007. Performance persistence and persistence in leveraging are higher for less experienced PE backers. Our results are novel, robust and of interest to academics, practitioners and investors.
Keywords: Buyout, fund performance, performance decomposition, performance persistence, Private Equity
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