Working Paper: NBER ID: w23428
Authors: Robert S. Harris; Tim Jenkinson; Steven N. Kaplan; Ruediger Stucke
Abstract: This paper focuses on funds of funds (FOFs) as a form of financial intermediation in private equity (both buyout and venture capital). After accounting for fees, FOFs provide returns equal to or above public market indices for both buyout and venture capital. While FOFs focusing on buyouts outperform public markets, they underperform direct fund investment strategies in buyout. In contrast, the average performance of FOFs in venture capital is on a par with results from direct venture fund investing. This suggests that FOFs in venture capital (but not in buyouts) are able to identify and access superior performing funds.
Keywords: Funds of Funds; Private Equity; Financial Intermediation; Performance; Venture Capital; Buyout
JEL Codes: G20; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fofs in venture capital (G24) | superior performing funds (G23) |
| fofs in venture capital (G24) | performance on par with direct venture fund investing (G24) |
| fofs in venture capital (G24) | higher risk reduction benefits (G52) |
| fofs focusing on buyouts (G34) | underperform direct fund investments (G23) |
| type of fund (buyout vs. venture) (G24) | performance outcomes (L25) |
| increased capital commitments (G31) | negatively impact performance for buyout fofs (G32) |