Exploring Private Equity Performance

Steven Kaplan, Neubauer Family Faculty Professor of Finance and Economics, outlined his work Saturday at the Chicago GSB Hyde Park Center for more than 100 alumni and friends of the GSB during a session that followed the building dedication.

“Private equity funds don’t beat the S&P 500,” he said.

The paper, ”Private Equity Performance: Returns, Persistence, and Capital Flows,“ which Kaplan co-authored with Antoinette Schoar, shows that returns persist strongly across different funds raised by the same partnership. “There is persistence in this asset class, he said. The good funds raise more money and stay in business.”

However, he noted, the best funds don’t become the biggest. “The best funds grow more slowly than they could, given their performance.” Growing larger would mean investing either in larger and different kinds of companies or increasing the number of companies the fund invests in. “In that case,” he said, “the question becomes, can you replicate the people?”

 

—Patricia Houlihan