[lbo-talk] New study: Private equity sucks (for investors)

Joseph Catron jncatron at gmail.com
Sun May 4 10:43:11 PDT 2008


FOR MOST PEOPLE, stocks are those numbers they always hear about on the news, but there is another world of stocks - known as private equity - that is off-limits to the general public. Private equity funds invest for the elite - pension funds, university endowments, the super wealthy. But the managers of these funds are not obligated to disclose their investments, so there has always been some mystery surrounding how well they perform. A new study finds that private equity funds actually do worse than the S&P 500, a benchmark index of stocks available to the general public. An important reason for this underperformance is the fact that fund managers can end up skimming off more than 25 percent of the fund as a fee for their services. The study does find that some funds do consistently better than the average, but it's not clear why most funds underperform. The authors speculate that there may be enough mystery surrounding fund performance to keep new money rolling in, or that perhaps university endowments and pension funds have other interests that temper their focus on maximizing financial return.

Phalippou, L. and Gottschalg, O., "The Performance of Private Equity Funds," Review of Financial Studies (forthcoming).

http://www.boston.com/bostonglobe/ideas/articles/2008/05/04/surprising_insights_from_the_social_sciences/?page=2

-- "Hige sceal þe heardra, heorte þe cenre, mod sceal þe mare, þe ure mægen lytlað."



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