Working Paper: NBER ID: w22493
Authors: Gregory W. Brown; Oleg R. Gredil; Steven N. Kaplan
Abstract: Private equity funds hold assets that are hard to value. Managers may have an incentive to distort reported valuations if these are used by investors to decide on commitments to subsequent funds managed by the same firm. Using a large dataset of buyout and venture funds, we test for the presence of reported return manipulation. We find evidence that some under-performing managers boost reported returns during times when fundraising takes place. However, those managers are unlikely to raise a next fund, suggesting that investors see through much of the manipulation. In contrast, we find that top-performing funds likely understate their valuations.
Keywords: No keywords provided
JEL Codes: G23; G24; G30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| manipulation of NAVs (G11) | fundraising success (L31) |
| underperforming fund managers inflate returns (G11) | fundraising success (L31) |
| poorly performing funds overstate NAVs (G23) | fundraising success (L31) |
| successful fundraising (Z23) | performance decline (D29) |
| top-performing funds understate valuations (G23) | fundraising success (L31) |
| institutional investors detect manipulation (G14) | fundraising outcomes (L31) |