Distorting Private Equity Performance: The Rise of Fund Debt
Two of Carnegie Mellon business school professors examine the emergence of debt financing by private equity funds.
This recently released paper studies the emergence of debt financing by private equity funds. Using confidential data on U.S. buyout funds, the publication documents the increasing use of subscription lines of credit (SLCs) as an additional source of capital. Albertus and Denes found that funds using SLCs tend to reduce the amount of equity invested relative to fund size and delay capital calls. The results suggest that the use of SLCs increases IRR-based performance by 6.1 percentage points, while multiples-based performance slightly declines. Overall, Albertus and Denes provide the first evidence on a new source of capital in private equity and its impact on funds.