Working Paper: CEPR ID: DP15883
Authors: Juliane Begenau; Emil N. Siriwardane
Abstract: We provide evidence that investment fees vary within private equity funds. Net-of-fee return clustering suggests that 70% of funds group investors into two fee-tiers that vary along both fixed and variable components. Managers of venture capital funds and those with high past performance are less likely to tier their investors. Some investors consistently earn higher net-of-fee returns relative to others within their funds. Investor size, experience, and past performance explain some but not all of this effect, suggesting that unobserved traits like negotiation skill or bargaining power materially impact the fees investors pay in private equity.
Keywords: private equity; public pensions; fee dispersion; search and negotiation frictions
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| variation in investor size, experience, and past performance (G11) | variation in investment fees (G11) |
| unobserved traits (negotiation skills or bargaining power) (C79) | variation in investment fees (G11) |
| fund performance (G14) | fee structure (D49) |
| negotiation skills or bargaining power (C78) | fee outcomes (G29) |
| investor size (G24) | fee structure (D49) |
| fee tier status (G29) | negotiation skills or bargaining power (C78) |