#05-41
What Drives Private Equity Fund Performance?
Ludovic Phalippou and Maurizio Zollo, November 2005
Abstract: Using a novel and comprehensive database on both US and EU private equity funds and their underlying investments, we study the drivers of private equity fund performance. First, we study whether their hedging properties are attractive enough to justify their low performance. We document that fund performance co-varies positively with both business cycles and stock-market cycles, an unattractive property. We also find that private equity funds – like hedge funds - are exposed to tail risk. Second, we do not find evidence that idiosyncratic risk is priced and document that low performance is concentrated in small and inexperienced funds.
Keywords: Private equity funds, Hedging properties
JEL classifications : G23, G24.
