Private Equity Performance: What Do We Know? HARRIS, ROBERT S.; JENKINSON, TIM; KAPLAN, STEVEN N.
The Journal of finance (New York),
October 2014, Letnik:
69, Številka:
5
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We study the performance of nearly 1,400 U.S. buyout and venture capital funds using a new data set from Burgiss. We find better buyout fund performance than previously documented—performance has ...consistently exceeded that of public markets. Outperformance versus the S&P 500 averages 20% to 27% over a fund's life and more than 3% annually. Venture capital funds outperformed public equities in the 1990s, but underperformed in the 2000s. Our conclusions are robust to various indices and risk controls. Performance in Cambridge Associates and Preqin is qualitatively similar to that in Burgiss, but is lower in Venture Economics.
Leveraged Buyouts and Private Equity Kaplan, Steven N.; Strömberg, Per
The Journal of economic perspectives,
2009, Letnik:
23, Številka:
1
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In a leveraged buyout, a company is acquired by a specialized investment firm using a relatively small portion of equity and a relatively large portion of outside debt financing. The leveraged buyout ...investment firms today refer to themselves (and are generally referred to) as private equity firms. We describe and present time series evidence on the private equity industry, considering both firms and transactions. We discuss the existing empirical evidence on the economics of the firms and transactions. We consider similarities and differences between the recent private equity wave and the wave of the 1980s. Finally, we speculate on what the evidence implies for the future of private equity.
It's the market Kaplan, Steven N; Rauh, Joshua
The Journal of economic perspectives,
07/2013, Letnik:
27, Številka:
3
Journal Article
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One explanation that has been proposed for rising inequality is that technical change allows highly talented individuals, or “superstars” to manage or perform on a larger scale, applying their talent ...to greater pools of resources and reaching larger numbers of people, thus becoming more productive and higher paid. Others argue that managerial power has increased in a way that allows those at the top to receive higher pay, that social norms against higher pay levels have broken down, or that tax policy affects the distribution of surpluses between employers and employees. We offer evidence bearing on the different theories explaining the rise in inequality in the United States over recent decades. First we look the increase in pay at the highest income levels across occupations. We consider the income share of the top 1 percent over time. And we turn to evidence on inequality of wealth at the top. In looking at the wealthiest Americans, we find that those in the Forbes 400 are less likely to have inherited their wealth or to have grown up wealthy. The Forbes 400 of today also are those who were able to access education while young and apply their skills to the most scalable industries: technology, finance, and mass retail. We believe that the US evidence on income and wealth shares for the top 1 percent is most consistent with a “superstar”-style explanation rooted in the importance of scale and skill-biased technological change. It is less consistent with an argument that the gains to the top 1 percent are rooted in greater managerial power or changes in social norms about what managers should earn.
Which CEO Characteristics and Abilities Matter? KAPLAN, STEVEN N.; KLEBANOV, MARK M.; SORENSEN, MORTEN
The Journal of finance (New York),
June 2012, Letnik:
67, Številka:
3
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We exploit a unique data set to study individual characteristics of CEO candidates for companies involved in buyout and venture capital transactions and relate these characteristics to subsequent ...corporate performance. CEO candidates vary along two primary dimensions: one that captures general ability and another that contrasts communication and interpersonal skills with execution skills. We find that subsequent performance is positively related to general ability and execution skills. The findings expand our view of CEO characteristics and types relative to previous studies.
We study how much of the top end of the income distribution is represented by four sectors—non–financial–firm top executives (Main Street); investment bankers and hedge, private equity, and mutual ...fund investors (Wall Street); corporate lawyers; and athletes and celebrities. Wall Street individuals comprise a higher percentage of the top income brackets than nonfinancial executives of public companies. While top executives' representation in the top brackets has increased from 1994 to 2004, Wall Street's representation has likely increased even more. We discuss the implications of our findings for different explanations for the increased skewness at the highest income levels.
How do venture capitalists make decisions? Gompers, Paul A.; Gornall, Will; Kaplan, Steven N. ...
Journal of financial economics,
January 2020, 2020-01-00, 20200101, Letnik:
135, Številka:
1
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We survey 885 institutional venture capitalists (VCs) at 681 firms to learn how they make decisions. Using the framework in Kaplan and Strömberg (2001), we provide detailed information on VCs’ ...practices in pre-investment screening (sourcing evaluating and selecting investments), in structuring investments, and in post-investment monitoring and advising. In selecting investments, VCs see the management team as somewhat more important than business-related characteristics such as product or technology although there is meaningful cross-sectional variation across company stage and industry. VCs also attribute the ultimate investment success or failure more to the team than to the business. While deal sourcing, deal selection, and post-investment value-added all contribute to value creation, the VCs rate deal selection as the most important of the three. We compare our results to those for chief financial officers (Graham and Harvey, 2001) and private equity investors (Gompers et al., 2016a).
This paper investigates the performance and capital inflows of private equity partnerships. Average fund returns (net of fees) approximately equal the S&P 500 although substantial heterogeneity ...across funds exists. Returns persist strongly across subsequent funds of a partnership. Better performing partnerships are more likely to raise follow-on funds and larger funds. This relationship is concave, so top performing partnerships grow proportionally less than average performers. At the industry level, market entry and fund performance are procyclical; however, established funds are less sensitive to cycles than new entrants. Several of these results differ markedly from those for mutual funds.
Are CEOs Different? KAPLAN, STEVEN N.; SORENSEN, MORTEN
The Journal of finance (New York),
08/2021, Letnik:
76, Številka:
4
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Using 2,603 executive assessments, we study how CEO candidates differ from candidates for other top management positions, particularly CFOs. More than half of the variation in the 30 assessed ...characteristics is explained by four factors that we interpret as general ability, execution (vs. interpersonal), charisma (vs. analytical), and strategic (vs. managerial). CEO candidates have more extreme factor scores that differ significantly from those of CFO candidates. Conditional on being considered, candidates with greater general ability and interpersonal skills are more likely to be hired. These and our previous results on CEO success suggest that boards overweight interpersonal skills in hiring CEOs.
What do private equity firms say they do? Gompers, Paul; Kaplan, Steven N.; Mukharlyamov, Vladimir
Journal of financial economics,
09/2016, Letnik:
121, Številka:
3
Journal Article
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We survey 79 private equity (PE) investors with combined assets under management of more than $750 billion about their practices in firm valuation, capital structure, governance, and value creation. ...Investors rely primarily on internal rates of return and multiples to evaluate investments. Their limited partners focus more on absolute performance as opposed to risk-adjusted returns. Capital structure choice is based equally on optimal trade-off and market timing considerations. PE investors anticipate adding value to portfolio companies, with a greater focus on increasing growth than on reducing costs. We also explore how the actions that PE managers say they take group into specific firm strategies and how those strategies are related to firm founder characteristics.
We use detailed assessments of CEO personalities to explore the nature of CEO overconfidence as it is commonly measured. Longholder, the option-based measure of CEO overconfidence introduced by ...Malmendier and Tate (2005a) and widely used in the behavioral corporate finance and economics literatures, is significantly related to several specific characteristics that are associated with overconfident individuals as well as individuals with lower ability. Similar relations hold for overconfidence measures based on CEOs’ earnings guidance. Investment-cash flow sensitivities are larger for both Longholder and less able CEOs. After controlling for ability and other characteristics, Longholder CEOs’ investments remain significantly more sensitive to cash flows. These results suggest that overconfidence, as measured by Longholder, is correlated with lower ability but still reflects empirically distinct aspects of overconfidence.
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