Working Paper: NBER ID: w11136
Authors: Josh Lerner; Antoinette Schoar; Wan Wong
Abstract: The returns that institutional investors realize from private equity investments differ dramatically across institutions. Using detailed and hitherto unexplored records of fund investors and performance, we document large heterogeneity in the performance of different classes of limited partners. In particular, endowments' annual returns are nearly 14% greater than average. Funds selected by investment advisors and banks lag sharply. These results are robust to controlling for the type and year of the investment, as well as to the use of different specifications. Analyses of reinvestment decisions and young funds suggest that the results are not primarily due to endowments' greater access to established funds. Finally, we examine the differences in the choice of intermediaries across various institutional investors and their relationship to success. We find that LPs that have higher average IRRs also tend to invest in older funds and have a smaller fraction of GPs in their geographic area, and that the performance of university endowments is correlated with measures of the quality and loyalty of the student body.
Keywords: Private Equity; Institutional Investors; Limited Partners
JEL Codes: G1; G2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| LP type (Y20) | fund performance (G14) |
| higher average IRRs (G19) | older funds (G23) |
| higher average IRRs (G19) | smaller fraction of GPs (I11) |
| reinvestment strategy (G11) | future performance (L25) |
| institutional characteristics (D02) | investment performance (G11) |