Some collected papers, articles and observations about Private Equity over the years:
“Co-investments underperform the corresponding funds with which they co-invest, due to an apparent adverse selection of transactions available to these investors, while solo transactions outperform fund benchmarks. Investors’ ability to resolve information problems appears to be an important driver of solo deal outcomes.” - “The Disintermediation of Financial Markets: Direct Investing in Private Equity” | Fang, Ivashina & Lerner (2015)”
“Using a unique dataset with detailed information on VC fund ownership structure, we find that GPs' capital commitment has an inverted U-shaped relationship with investment speed, investment distance, and industry specialization. GPs' capital commitment is also associated with greater exit success. These effects are more pronounced for VC funds with less monitoring by limited partners (LPs).” - “Skin in the game: General partner capital commitment, investment behavior and venture capital fund performance” | Jia and Wang (2017)
“If heterogeneity in GP skills drives the persistence results, it is puzzling that the returns to superior skill are not appropriated by the GPs through higher fees and larger funds, as has been suggested for mutual funds (see Berk and Green (2002)). From Gompers and Lerner (1999), we know that compensation was relatively homogeneous during our sample period. Most funds used a compensation scheme of a 1.5–2.5% annual management fee and a 20% carried interest or share of the profits.” - “Private Equity Performance: Returns, Persistence and Capital Flows” | Kaplan and Schoar (2005)
“[…] general partners with an operational background (ex-consultants or ex-industry-managers) generate significantly higher outperformance in organic deals that focus exclusively on internal value creation programs; in contrast, general partners with a background in finance (ex-bankers or ex-accountants) generate higher outperformance in deals with significant M&A events.” - “Corporate Governance and Value Creation: Evidence from Private Equity” | Acharya et al. (2013)
“Buyout leverage is unrelated to the cross-sectional factors – suggested by traditional capital structure theories – that drive public firm leverage. Instead, variation in economy-wide credit conditions is the main determinant of leverage in buyouts, while having little impact on public firms. Higher deal leverage is associated with higher transaction prices and lower buyout fund returns, suggesting that acquirers overpay when access to credit is easier.” - “Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts” | Axelson et al
“This paper analyzes the economics of the private equity industry using a novel model and dataset. […] Among our sample funds, about two-thirds of expected revenue comes from fixed-revenue components that are not sensitive to performance. We find sharp differences between venture capital (VC) and buyout (BO) funds. BO managers build on their prior experience by increasing the size of their funds faster than VC managers do. This leads to significantly higher revenue per partner and per professional in later BO funds. The results suggest that the BO business is more scalable than the VC business, and that past success has a differential impact on the terms of their future funds.” - “The Economics of Private Equity Funds” | Metrick and Yasuda (2007)
“In the three years after the [management] buyout, these [76] companies experience increases in operating income (before depreciation), decreases in capital expenditures, and increases in net cash flow. Consistent with the operating changes, the mean and median increases in market value (adjusted for market returns) are 96% and 77% from two months before the buyout announcement to the post-buyout sale. The evidence suggests the operating changes are due to improved incentives rather than layoffs or managerial exploitation of shareholders through inside information.” - “The effects of management buyouts on operating performance and value” | Kaplan (1989)
“Our findings are as follows. First, established funds accelerate their investment flows and earn higher returns when investment opportunities improve, competition for deal flow eases, and credit market conditions loosen. Second, the investment behavior of first-time funds is less sensitive to market conditions. Third, younger funds invest in riskier buyouts, in an effort to establish a track record. Finally, following periods of good performance, funds become more conservative, and this effect is stronger for first-time funds.” - “The Investment Behavior of Buyout Fund: Theory and Evidence” (Working Paper) | Ljungqvist et al (2017)
“We find that the target firms of private equity transactions experience an intensification of job creation and destruction activity, establishment entry and exit, and establishment acquisition and divestiture […] The resulting effect on real output for target firms is large. We estimate that private equity transactions completed between 1980 and 2005 yielded as much as 15 billion dollars of extra output in 2007 at target manufacturing firms.” - “Private Equity, Jobs and Productivity” | Davis et al (2008)
“[…] Shareholders receive approximately 10% less of pre-bid firm equity value, or roughly 40% lower premiums, in club deals compared to sole-sponsored LBOs. […] Overall, our findings are consistent with the view that club deals are detrimental to passive, dispersed shareholders of publicly-traded corporations, especially before 2006.” - “Club Deals in Leveraged Buyouts” | Officer et. al (2009)