Harris, Jenkinsen & Kaplan: Private equity performance: what do we know?

Question 1

historical performance of PE remains uncertain

Answer 1

driven by uneven disclosure of PE returns and questions about the data available for research

Question 2

Private equity

Answer 2

asset class that includes buyout funds and venture capital funds

Question 3

public market equivalent (PME) method

Answer 3

compares how much a PE fund investor actually earned net of fees to what the investor would have earned in an equivalent investment in the public market

Question 4

PE investments are ..

Answer 4

illiquid. They yield investors some premium relative to public markets

Question 5

commitment risk

Answer 5

there is uncertainty regarding how much to commit to PE funds to achieve a target portfolio allocation

Question 6

fund IRR

Answer 6

measures the LPs annualized IRR based on fund contributions and distributions, net of fees and profit shares (carried interest) paid to the GP

Question 7

investment multiple

Answer 7

compares the sum of all fund contributions by investors to the sum of all fund distributions and the value of unrealized investments (net of fees and carried interest)

Question 8

buyout funds

Answer 8

IRR averaged about 14% per annum and the average investment multiple has been about 2

Question 9

VC funds

Answer 9

the pattern of performance over time is more variable

Question 10

the average PME ratio of 1.20 and the average annual excess return of roughly 4% suggests that the typical duration of a buyout fund is ..

Answer 10

on the order of 5 years (a duration lower than the typical funds legal life of 10-13 years)

Question 11

fund size

Answer 11

fund sizes have, on average, increased for both buyout and VC funds

Question 12

relation between size and performance for VC funds

Answer 12

positive relation

Question 13

buyout funds are strongly related to IRRs and multiples

Answer 13

it is possible to predict future buyout fund’s PMEs with a great degree of reliability knowing a fund’s IRR, multiple and vintage year

Question 14

multiples are more robust indicators of fund performance relative to public markets than

Answer 14

IRRs (controlling for vintage years)

Question 15

investing in a portfolio of PE funds across vintage years inevitably involves ..

Answer 15

uncertainties and potential costs related to the long-term commitment of capital, uncertainties of cash flows, and liquidity of holdings that differ from those of public markets