The Performance of Private Equity Funds

Oliver Gottschalg (1) , Ludovic Phalippou (2)

1 GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC
2 UvA - University of Amsterdam [Amsterdam]

The performance of private equity funds as reported by industry associations and previous research is overstated. A large part of performance is driven by inflated accounting valuation of ongoing investments and we find a bias toward better performing funds in the data. We find an average net-of-fees fund performance of 3% per year below that of the S&P 500. Adjusting for risk brings the underperformance to 6% per year. We estimate fees to be 6% per year. We discuss several misleading aspects of performance reporting and some side benefits as a first step toward an explanation.

Keywords: Performance; Private equity

Domains: Strategy and business policy

Oliver Gottschalg, Ludovic Phalippou. The Performance of Private Equity Funds. Review of Financial Studies, 2009, Vol. 22, n° 4, pp. 1747-1776. ⟨10.1093/rfs/hhn014⟩. ⟨hal-00458111⟩