Performance of Private Equity Funds

Phalippou, Ludovic; Gottschalg, Oliver

doi:10.2139/ssrn.473221

Cited by 156 publications

(235 citation statements)

References 13 publications

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“…Ewens, Jones, and Rhodes-Kropf (2013) used general partner value estimates (rather than realized returns) to estimate quarterly private equity returns and documented annual alphas of 4% for buyout funds. Phalippou and Gottschalg (2009) used a dataset similar to that of Kaplan and Schoar (2005) but argued that reasonable adjustments to the data to reflect the nature of reporting biases lead to lower estimates of returns. Franzoni, Nowak, and Phalippou (2012) argued that private equity investments are exposed to illiquidity risk and, after accounting for this liquidity risk, earn an alpha close to zero.…”

Section: Performance Of Alternative Investmentsmentioning

confidence: 99%

Do (Some) University Endowments Earn Alpha?

Barber

Wang

2013

Financial Analysts Journal

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The authors analyzed the returns earned by U.S. educational endowments using style attribution models. For the average endowment, models with only public stock and bond benchmarks explain virtually all the timeseries variation in returns, yield no alpha, and generate sensible factor loadings. Elite institutions perform better than public stock and bond benchmarks because of large allocations to alternative investments. The authors found no evidence that manager selection, market timing, and tactical asset allocation generate alpha. E ducational institutions hold billions of dollars in endowment funds. As of June 2011, the top five educational endowments (Harvard University, Yale University, Stanford University, Princeton University, and the University of Texas) managed a total of $102 billion and all educational endowments in the United States and Canada collectively managed in excess of $408 billion. 1 These funds are often critical to the finances of educational institutions, but we know very little about the performance of endowments. Our lack of knowledge regarding their performance, largely a result of the limited availability of data, is remarkable given the legendary performance of some institutions, most notably the Yale endowment. David Swensen, the long-time manager of the Yale endowment, has long advocated the so-called endowment model 2 of investing popularized in his book Pioneering Portfolio Management (2009). Following the principles that he espouses, the Yale endowment earned double-digit returns for over a decade, through 2008, before dropping by 24.5% for the year ending June 2009, which placed Yale in the bottom decile of endowment performance.Yale is not the only elite institution that was hit hard by the market woes of 2009. Harvard and Stanford also saw the value of their endowments drop by more than 20%. Many universities, including such elite institutions as Princeton and Harvard, that rely heavily on endowment funding for ongoing operational expenses were forced to slash spending in the wake of steep losses. 3 The losses incurred by endowments in 2009 caused plan sponsors to question their ability to deliver superior returns using the endowment model.In this article, we shed light on the strong returns (and sharp correction) experienced by many endowments. We analyzed endowment returns for a large set of institutions over the 21 years ending in June 2011 and addressed three questions: (1) Does the average endowment earn an abnormal return (alpha) relative to standard benchmarks? (2) Do elite institutions earn alpha? (3) Is there evidence of performance persistence in endowment returns?To answer these questions, we used simple assetclass attribution models pioneered by Sharpe (1992). The intercepts from these models can be interpreted as the additional return earned by endowment funds relative to the best-fit replicating portfolio. We began the analysis with simple two-and three-factor attribution models. The two-factor model uses benchmarks for publicly traded U.S. stocks (S&P 500 Index...

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Section: Performance Of Alternative Investmentsmentioning

confidence: 99%

Do (Some) University Endowments Earn Alpha?

Barber

Wang

2013

Financial Analysts Journal

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“…Ludovic Phalippou's research and surveys are not great marketing material for the industry. Phalippou and Gottschalg (2009) find even worse results after adjusting for selection biases related to voluntary reporting. Empirical analysis reinforces the suspicion that funds not opting to report to the fund databases tend to have worse performance than reporting funds.…”

Section: Private Equity Fundsmentioning

confidence: 90%

Expected Returns on Major Asset Classes

Ilmanen

2012

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“…157, effective as of the end of 2007). We observed two different types of residual NAVs: (1) the "living dead investments NAVs" (see Phalippou and Gottschalg 2009), which occur late in vintages (12+ years) and are likely to be overstated, and (2) the "J-curve NAVs," which occur early in vintages, may not reflect the upside realized in the underlying portfolio, and are likely to be understated. 18.…”

Section: Ce Qualifiedmentioning

confidence: 93%