The evolution of private equity fund value

Abstract

This article provides the first large-sample analysis of buyout and venture capital fund values over their lifetimes. Specifically, the authors examine fund future investment multiples (TVPIs), internal rates of return (IRRs), and direct alphas based on the current reported net asset values (NAVs) at each year of a fund’s life. Using a sample of 1,400 mature buyout and VC funds, they find that the typical fund experiences a falloff in future returns after it is about seven to eight years old. However, the remaining performance is highly variable for funds of all ages, and the dispersion in returns also tends to increase after funds are about eight years old. They examine the cross-sectional determinants of the remaining fund value and find that several fund-specific and market-wide factors determine future performance and that these vary by type and age of fund. For example, young funds tend to be harmed by high market-wide dry powder levels, whereas older funds appear to benefit.