The performance of private-equity funds tends to go in cycles—periods of high fund raising are followed by periods of low performance.

But timing private-equity investments, like timing public markets, is difficult to do, according to University of North Carolina’s Gregory Brown, University of Virginia’s Robert S. Harris, data-management provider Burgiss’s Wendy Hu, University of Oxford’s Tim Jenkinson, Chicago Booth’s Steve Kaplan, and Duke’s David T. Robinson.

The researchers’ work, based on nearly 30 years of data, demonstrates that investors can derive only “modest gains, at best” from attempts to time the private-equity market. That’s because investors’ timing can’t be precise. No matter when they commit money to such funds, they don’t control when the fund actually puts their money into or pulls it out of a particular investment. The fund’s manager makes those decisions.

In fact, attempts at timing may be more trouble than they’re worth, the researchers suggest. The resulting swings in an investor’s allocation of capital could lead to organizational challenges, they write, making it more difficult for investors to maintain long-term relationships with the fund managers they deal with.

The researchers used Burgiss data on cash flows from more than 3,500 private-equity funds, both buyout and VC funds, dating back to 1987. They created a range of investing strategies under different timing approaches and conditions and analyzed the results an investor could have expected from each.

They find that untimed private-equity returns have tended to be better than the returns from investing in a stock market index fund. A timing strategy for private equity does not deliver much better returns than an untimed strategy.

For example, the researchers find, a “neutral,” nontiming strategy might be expected to pay back $1.80 for every dollar invested in a buyout fund. Meanwhile, a countercyclical strategy as highlighted in the paper—one that tries to time the market by committing more money when overall commitments are low—would pay back just 6 cents more, or $1.86. For VC funds, the picture is similar, though some timing strategies can actually yield slightly worse returns than no timing, the researchers find.

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That’s because the private-equity system gives the fund manager all the authority to decide when to buy or sell a particular investment and for how much. The limited partners that contribute money to the private-equity fund can’t make those choices. They choose only when and how much to commit to a fund in the first place.

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This system is aimed at giving limited partners the best possible returns by allowing them to piggyback on a fund manager’s investing acumen. But it also creates a constraint. Unlike in public markets, where investors can buy and sell immediately on the basis of their own decisions, in private equity, some of the most important decisions are out of their hands.

As a result, the researchers say, private-equity investors “face significant delays and uncertainty” and “commitment risk.” In fact, they write, the findings suggest there can be better ways than timing for investors to earn higher private-equity returns—investing in VC funds that have experienced managers, for instance.

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