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Private Equity Institute

Persistence

Has persistence persisted in Private Equity? Evidence from buyout and venture capital funds

Tim Jenkinson, Robert S. Harris
Steven N. Kaplan, Rüdiger Stucke
The conventional wisdom for investors in private equity funds is to invest in partnerships that have performed well in the past, so-called top quartile funds. This conventional wisdom is based on the belief that performance in private equity persists across funds for the same partnership.
The persistence of returns is a critical issue for investors in their choice of private equity managers. In this paper we analyse buyout performance persistence in new ways, using a unique database containing cash-flow data on 13,523 portfolio company investments by 865 buyout funds.
This paper focuses on funds of funds (FOFs) as a form of financial intermediation in private equity (both buyout and venture capital). Compared to investments in hedge funds or publicly traded stocks, private equity investments in direct funds are less liquid, less easily scaled and have higher search and monitoring costs.
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