{"title":"The Evolution of Private Equity Fund Value","authors":"Gregory W. Brown, W. Hu, Jian Zhang","doi":"10.2139/ssrn.3621407","DOIUrl":null,"url":null,"abstract":"This article provides the first large-sample analysis of buyout and venture capital fund values over their lifetimes. Specifically, the authors examine fund future investment multiples (TVPIs), internal rates of return (IRRs), and direct alphas based on the current reported net asset values (NAVs) at each year of a fund’s life. Using a sample of 1,400 mature buyout and VC funds, they find that the typical fund experiences a falloff in future returns after it is about seven to eight years old. However, the remaining performance is highly variable for funds of all ages, and the dispersion in returns also tends to increase after funds are about eight years old. They examine the cross-sectional determinants of the remaining fund value and find that several fund-specific and market-wide factors determine future performance and that these vary by type and age of fund. For example, young funds tend to be harmed by high market-wide dry powder levels, whereas older funds appear to benefit. TOPICS: Private equity, performance measurement Key Findings ▪ The typical fund experiences a falloff in returns after it is about seven to eight years old. This is true for both VC and buyout funds. ▪ Contrary to common wisdom, the cross-sectional dispersion of fund performance measured by future internal rate of return and direct alpha tends to increase, not decrease, for funds more than five years old. ▪ A wide variety of market-wide and fund-specific factors predict future fund performance. These include to-date distributions, dry powder, previous fund performance, fund size, general partner fundraising activity, previous public market stock returns, and credit spreads. Relevant factors are different for VC funds and buyout funds and can vary systematically over funds’ life cycles.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.4000,"publicationDate":"2020-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"2","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Alternative Investments","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.3621407","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 2
Abstract
This article provides the first large-sample analysis of buyout and venture capital fund values over their lifetimes. Specifically, the authors examine fund future investment multiples (TVPIs), internal rates of return (IRRs), and direct alphas based on the current reported net asset values (NAVs) at each year of a fund’s life. Using a sample of 1,400 mature buyout and VC funds, they find that the typical fund experiences a falloff in future returns after it is about seven to eight years old. However, the remaining performance is highly variable for funds of all ages, and the dispersion in returns also tends to increase after funds are about eight years old. They examine the cross-sectional determinants of the remaining fund value and find that several fund-specific and market-wide factors determine future performance and that these vary by type and age of fund. For example, young funds tend to be harmed by high market-wide dry powder levels, whereas older funds appear to benefit. TOPICS: Private equity, performance measurement Key Findings ▪ The typical fund experiences a falloff in returns after it is about seven to eight years old. This is true for both VC and buyout funds. ▪ Contrary to common wisdom, the cross-sectional dispersion of fund performance measured by future internal rate of return and direct alpha tends to increase, not decrease, for funds more than five years old. ▪ A wide variety of market-wide and fund-specific factors predict future fund performance. These include to-date distributions, dry powder, previous fund performance, fund size, general partner fundraising activity, previous public market stock returns, and credit spreads. Relevant factors are different for VC funds and buyout funds and can vary systematically over funds’ life cycles.
期刊介绍:
The Journal of Alternative Investments (JAI) provides you with cutting-edge research and expert analysis on managing investments in hedge funds, private equity, distressed debt, commodities and futures, energy, funds of funds, and other nontraditional assets. JAI is the official publication of the Chartered Alternative Investment Analyst Association (CAIA®). JAI provides you with challenging ideas and practical tools to: •Profit from the growth of hedge funds and alternatives •Determine the optimal mix of traditional and alternative investments •Measure and track portfolio performance •Manage your alternative investment portfolio with proven risk management practices