Private Equity Performance Drivers
Abstract: This paper investigates which are the key performance drivers for private equity firms. We have collected information on performances and features for 570 private equity funds raised between 1980 and 2009 and managed by 151 General Partners. They have a cumulative committed capital of more than $1 trillion, allocated across 6,620 investments. Overall, we have found a positive and concave relationship between Venture Capital funds' performances and their sizes. Moreover, we documented a strong persistence across funds managed by the same General Partner both for Buyout and Venture Capital. In addition, experience seems to be an important driver of performance for any type of PE fund. We have found a positive and concave relationship between current fund's performance and the natural logarithm of fund's sequence number. Furthermore, industry concentration is another significant driver of performance for BO funds but it is not so important for VC. Finally, we have found no evidence that geographical concentration improves or worsens performance. Interestingly, our findings hold also when we measure performance in terms of cash-on-cash multiple or quartile ranking. Moreover, thanks to robustness tests, we have shown that our main findings are strong and independent from the specific form assumed by the variables in question.
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