The Performance of Private Equity Funds

Phalippou, Ludovic; Gottschalg, Oliver

doi:10.1093/rfs/hhn014

Cited by 453 publications

(62 citation statements)

References 16 publications

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“…HLL2007 found that VC firms that occupied central positions in the coinvestment network-regardless of the specific centrality measure used-invested in firms that enjoyed much higher rates of "exit" events (an initial public stock offering or a sale to another firm), a close correlate of the returns that the VC firms could expect from their investments (Phalippou and Gottschalg 2009). They also found that the companies in which central firms invested survived longer.…”

mentioning

confidence: 99%

Temporal Issues in Replication: The Stability of Centrality-Based Advantage

Shi¹,

Sorenson²,

Waguespack³

2017

SocScience

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Abstract:The results of archival studies may depend on when researchers analyze data for at least two reasons: (1) databases change over time and (2) the sampling frame, in terms of the period covered, may reflect different environmental conditions. We examined these issues through the replication of Hochberg, Ljungqvist, and Lu's (2007) research on the centrality of venture capital firms and their performance. We demonstrate (1) that one can reproduce the results in the original article if one uses data downloaded at roughly the same time as the original researchers did, (2) that these results remain fairly robust to even a decade of database updating, but (3) that the results depend sensitively on the sampling frame. Centrality only has a positive relationship to fund performance during boom periods.Keywords: centrality; replication; status; venture capital M uch of the recent attention to the need for replication has focused on confirming the results of experiments, particularly in medicine and in psychology (e.g., Ioannidis 2005; Simmons, Nelson, and Simonsohn 2011). Replication often matters in these settings because the high cost of doing certain sorts of research restricts these experiments to small samples, raising the potential for false positives both through random chance and through the intentional and unintentional decisions of the researchers (Simmons et al. 2011).By contrast, replication in sociology and other nonexperimental social science research might seem less important. Research in these fields typically involves regressions run on large, archival datasets. These studies have plenty of statistical power, reducing both the importance of the choices made by researchers and the odds of misattributing noise to being a signal. The data also often appear relatively immutable. Replication, therefore, would seem to involve little more than understanding the sensitivity of the results to the construction of variables and to estimation choices (e.g., Breznau 2015; Hannon and Defina 2016).But archival studies have their own sources of vulnerability. Databases, particularly those regularly updated by government agencies or commercial vendors, change as additional data become available and as errors get corrected. Sampling methods and questions may change subtly across years. Social processes and market forces also evolve and drift over time, meaning that results that hold in one longitudinal sample may not in another that ostensibly covers the same population over a slightly different time frame.Our replication explores the importance of these temporal issues-when the researcher engaged in the research and the period that he or she studied-through the replication and extended analysis of one of the most highly cited articles relat-107

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confidence: 99%

Temporal Issues in Replication: The Stability of Centrality-Based Advantage

Shi¹,

Sorenson²,

Waguespack³

2017

SocScience

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“…Differently from Phalippou and Gottschalg (2009), and in accordance with Sensoy et al (2014), we believe that PE funds outperform the equity market. Among the two types of funds, we expect VC funds to have greater returns than BO funds, due to the fact that they usually invest their capital in early-stage and rapidly growing companies.…”

Section: Research Question and Hypothesesmentioning

confidence: 61%

“…The use of a long estimation period allows us to consider in our analysis several stages of the PE industry life cycle (period of high growth, crisis period, and mature growth), providing investors with useful implications not affected by specific events or by the industry cycle, generating thus more robust through-the-cycle results. Finally, in discordance with Phalippou andGottschalg (2009) andPhalippou (2013), we find that both VC and BO funds outperform the S&P 500, on average. The paper is structured as follows: Section 2 is dedicated to the literature review, while Section 3 presents the research question and our hypotheses.…”

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confidence: 57%

“…A decade after, Sorensen and Jagannathan (2015) demonstrate that the PME is a generalized method-of-moments estimator, using the stochastic discount factor implied by Rubinstein (1976)'s CAPM. Phalippou and Gottschalg (2009) show that PE underperforms the S&P 500 net of fees (adjusting for risk leads to an even greater underperformance), and Phalippou (2013) shows that BO funds underperform relevant benchmarks. Contrarily, Stucke (2011) argues that the estimates of BO performance made by Kaplan and Schoar (2005) and Phalippou and Gottschalg (2009) are downward biased, due to data defects, and that it is likely that BO funds outperformed the S&P 500 over their sample period.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Phalippou and Gottschalg (2009) show that PE underperforms the S&P 500 net of fees (adjusting for risk leads to an even greater underperformance), and Phalippou (2013) shows that BO funds underperform relevant benchmarks. Contrarily, Stucke (2011) argues that the estimates of BO performance made by Kaplan and Schoar (2005) and Phalippou and Gottschalg (2009) are downward biased, due to data defects, and that it is likely that BO funds outperformed the S&P 500 over their sample period. In accordance, Higson and Stucke (2012) and Harris, Jenkinson, and Kaplan (2014b) document that BO funds have historically outperformed the S&P 500.…”

Section: Literature Reviewmentioning

confidence: 99%

See 2 more Smart Citations

Private equity characteristics and performance: An analysis of North American venture capital and buyout funds

et al. 2019

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The paper investigates the relationship between fund performance and fund characteristics of North American private equity (PE) funds, by analyzing the interactions of fund size, fund sequence, and past fund performance on traditional fund return measures. The empirical evidence is based on both linear and polynomial regressions, on a sample of 345 venture capital (VC) and 411 buyout (BO) funds with vintage year over the period 1995–2010. We document a concave relationship between fund size and performance, persistence in PE performance, as well as a convex relationship between fund sequence and performance. We suggest both the optimal fund size and the optimal fund sequence number. Economic implications for investors and general partners are discussed as well.

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Private Equity Fund Selection: How to Find True Top‐Quartile Performers

Gottschalg

2010

Private Equity

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The Performance of Private Equity Funds

Cited by 453 publications

References 16 publications

Temporal Issues in Replication: The Stability of Centrality-Based Advantage

Temporal Issues in Replication: The Stability of Centrality-Based Advantage

Private equity characteristics and performance: An analysis of North American venture capital and buyout funds

Private Equity Fund Selection: How to Find True Top‐Quartile Performers

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