Abstract

Using cash flows from a large sample of buyout and venture funds, the author shows that private equity (PE) distributions predict returns in the industries of funds’ specialization. The tests distinguish timing skill from reactions to market conditions and spillover effects of PE activity. Fund managers tend to sell at the industry peaks only when they have performance fees to harvest and foresee public firms’ future earnings rather than the variation in discount rates. These results help better understand the performance of PE funds and have implications for manager selection, contract design and the PE role in modern capital markets.

Author

Oleg R. Gredil