Private Equity in the 21st Century: Liquidity, Cash Flows, and Performance from 1984-2010
Speaker
Abstract
| Using detailed data on the quarterly cash flows for a large sample of venture capital and buyout private equity funds from 1984-2010, we investigate the times-series and cross-sectional properties of private equity cash flows and performance. On average, buyout funds in our sample have outperformed the S&P 500 on a net-of-fee basis by about 18% over the life of the fund, while venture funds have outperformed by about 3%. Performance and cash flows over time are highly correlated with public market conditions. Consequently, funds raised in hot markets underperform in absolute terms (IRR) but not relative to the S&P 500 (PME). Capital calls and distributions both increase when public equity valuations rise, but distributions are more sensitive than calls, implying that net cash cows are procyclical and private equity funds are liquidity providers (sinks) when valuations are high (low). Controlling for public equity valuations, there is little evidence for the common view that private equity is a liquidity sink, except during the financial crisis and ensuing recession of 2007-2009, when unexplained calls spiked and distributions plummeted. |
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| Elvira Sojli |
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