Skill and Luck in Private Equity Performance

By Arthur Korteweg, M. Sørensen. 2017

148 citations recorded by the source corpus.

Private equity (PE) performance is persistent, with PE firms consistently producing high (or low) net-of-fees returns. We use a new variance decomposition model to isolate three components of persistence. We find high long-term persistence: the spread in expected net-of-fee future returns between top and bottom quartile PE firms is 7–8 percentage points annually. This spread is estimated controlling for spurious persistence, which arises mechanically from the overlap of contemporaneous funds. Performance is noisy, however, making it difficult for investors to identify the PE funds with top quartile expected future performance and leaving little investable persistence.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/01784178957ddac0f09f0d5a06e7845b80b53e17

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

1. Joern H. Block
2. Christian Fisch
3. Silvio Vismara
4. I. Stoff
5. René Andres
6. R. Braun
7. T. Jenkinson
8. Paul P. Momtaz

In Finance

1. I. Stoff
2. Silvio Vismara
3. R. Braun
4. Joern H. Block
5. T. Jenkinson
6. Christian Fisch

Citations in the corpus

• How Persistent is Private Equity Performance? Evidence from Deal-Level Data (2017, background): “4 An interesting recent paper that also advances the analysis of performance persistence is Korteweg and Sorensen (2014), who develop a variance decomposition model based on a Bayesian procedure.”
• Private equity investment criteria: An experimental conjoint analysis of venture capital, business angels, and family offices (2019, background): “skilled workers, alliance partners, and financial intermediaries) (e.g., Bottazzi et al., 2008; Gompers and Lerner, 2001; Hellmann and Puri, 2002; Korteweg and Sørensen, 2017; Lerner, 1995).”