Investing in Private Equity Partnerships


Private equity investments comprise all equity investments26 in non-public27, closely held companies that face a transformational situation in their corporate development.28 Apart from providing financial resources, private equity investors offer additional management support mainly by advising the management teams of the portfolio companies.29 The objective of the investors is to generate an optimal risk-adjusted rate of return of their investments. The primary reward of the investors is typically a capital gain which is only rarely supplemented by dividend yields. In order to realize that capital gain, the investors typically plan for an exit of the company investment already at the time of the initial investment. The holding period of the investments lasts usually five to seven years.30


Private Equity Fund Manager Fund Investor Asset Class Venture Capital Investment 
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  1. 26.
    Equity investments are any form of securities that have an equity feature, e.g. common stock, convertible preferred stock, or subordinated debt that include conversion privileges or warrants. See Fenn/ Liang/ Prowse (1995), p. 2. If an investment has both equity and debt characteristics it is also called mezzanine capital.Google Scholar
  2. 27.
    The majority of private equity investments are in unquoted companies. However, private equity investors have historically also pursued private investment in public equity, so-called PIPE investments. These transactions are typically structured as minority investments in a publicly listed company. See Kuzneski/ Landen (2006). EVCA therefore defines the term private equity more broadly as “investing in securities through a negotiated way.” Bance (2004), p. 2.Google Scholar
  3. 28.
    See Hagenmüller (2004), p. 12; Wright/Robbie (1998), p. 526; Bader (1996), p. 11. In addition to equity capital, investors may provide debt to the companies.Google Scholar
  4. 29.
    See Wright/ Robbie (1998), p. 525. Private equity investors may for example take an active role as member of the advisory boards.Google Scholar
  5. 30.
    See Achleitner/ Müller (2004), p. 15; Levin (2002), p. 102.Google Scholar
  6. 31.
    Most categorizations of private equity investments build upon the stage of corporate development in which the portfolio companies is. See for an overview of different conceptualizations of the stages in the literature Fingerle (2005), p. 24.Google Scholar
  7. 32.
    For further details on the sub-segmentation see for example Schefczyck (2000), p. 37 or Sahlman (1990), p. 479. The boundaries of the different development stages are blurred.Google Scholar
  8. 33.
    See Grabenwarter/ Weidig (2005a), p. 19. Venture capital investments are often distinguished in seed, start-up and expansion capital. Seed capital finances the research, assess and development of a product. Start-up capital serves to finance the set-up of a company and the further development and initial marketing of the product. When the business reaches break-even or is profitable, expansion capital might be provided to finance further growth, e.g. the increase of production capacity, market development or providing working capital. See Bance (2004), p. 3; Sahlman (1990), p. 479.Google Scholar
  9. 34.
    See Fingerle (2005), p. 28.Google Scholar
  10. 36.
    See Tuck (2003a), p. 6. The investors usually acquire a controlling stake of the company.Google Scholar
  11. 37.
    See Grabenwarter/ Weidig (2005a), p. 18. Kraft (2001) provides an in-depth analysis of the management of private equity investment in turnarounds.Google Scholar
  12. 39.
    Based on Fenn/ Liang/ Prowse (1995), p. 4; Gompers/Lerner (2004), p. 11. A third way is investing via fund-of-funds who themselves invest in other intermediaries. See more details in chapter Scholar
  13. 40.
    See Povaly (2006), p. 14.Google Scholar
  14. 41.
    See Fenn/ Liang/ Prowse (1995), p. 2. In comparison, the informal private equity market comprises all investments in privately held companies by investors that are not professionally managed and which are typically only occasionally pursued. This may also include business angel capital investments in small, new companies by wealthy individuals who may advise the entrepreneurs but who are not as active as professional managers in monitoring the company and taking control. See Wright/Robbie (1998), pp. 530 et seq. for more information on business angel.Google Scholar
  15. 42.
    See Achleitner (2002a), p. 145.Google Scholar
  16. 43.
    Based on Achleitner (2002a), p. 145.Google Scholar
  17. 44.
    See for example Amit/ Brander/ Zott (1998); Fenn/Liang/Prowse (1995); Sahlman (1990).Google Scholar
  18. 45.
    See Prowse (1998), p. 28. Other words for adverse selection and moral hazard are sorting and incentive problems. See Amit/Brander/Zott (1998), p. 443.Google Scholar
  19. 46.
    See Akerlof (1970), pp. 488 et seq. Akerlof describes the problem of adverse selection using the example of the used car market.Google Scholar
  20. 47.
    See Sanders/ Boivie (2004), pp. 274 et seq.Google Scholar
  21. 48.
    See Prowse (1998), p. 27; Amit/Brander/Zott (1998), p. 444.Google Scholar
  22. 49.
    See Schefczyck (2000), p. 146.Google Scholar
  23. 50.
    See Barnes/ Menzies (2005), p. 210; Fenn/Liang/Prowse (1995), p. 28.Google Scholar
  24. 51.
    See Diamond (1984), p. 393.Google Scholar
  25. 52.
    See Sahlman (1990), p. 487; Fenn/Liang/Prowse (1995), p. 1. There are other organizational structures available. An alternative organizational form may be a corporate holding structure in which a management company and the investment fund form one entity with infinite lifetime. See Fingerle (2005), p. 58. Listed private equity vehicles typically take this legal form. However, only a few private equity funds are listed.Google Scholar
  26. 53.
    A detailed discussion of the legal and tax structures of private equity partnerships in different jurisdictions goes beyond the scope of this analysis. Only the key aspects of a limited partnership are explained in general. These aspects, however, apply under various legal structures. For a detailed legal and tax analysis of U.S. private equity partnerships see for example Levin (2002).Google Scholar
  27. 54.
    See Hagenmüller (2004), p. 18. The general partner’s contribution is intended to align interest between the partners. For more details see 2.4.3.Google Scholar
  28. 55.
    See Schell (2006), p. I/17; Fingerle (2005), p. 58; BVCA (2002), 4.Google Scholar
  29. 57.
    Based on Bader (1996), p. 156; Meyer/Mathonet (2005), p. 28; Levin (2002), chap. 10, p. 3.Google Scholar
  30. 58.
    Typically, this is 2.0% to 2.5% of the committed capital. See Hagenmüller (2004), p. 19.Google Scholar
  31. 60.
    The actual treatment depends on the jurisdiction the fund operates in. For U.S. private equity partnership law see Levin (2002); Schell (2006). For an introduction of legal and regulatory aspects of private equity funds in Europe see EVCA (2004).Google Scholar
  32. 61.
    If they participate in the control of the partnership, the limited liability status may be lost. See Gompers/ Lerner (2004), p. 65.Google Scholar
  33. 62.
    See Grabenwarter/ Weidig (2005a), p. 68. However, the limited liability could be also achieved by other organisational structures such as a limited corporation.Google Scholar
  34. 63.
    See Blake (1999), p. 84. An investor in a fund should not pay more taxes than an investor who made an investment directly in the portfolio companies.Google Scholar
  35. 64.
    See Brooks (1999), p. 107.Google Scholar
  36. 65.
    See Blake (1999), pp. 84 et seq. Parallel structures where several vehicles co-exist and co-invest are common in private equity but increase both the complexity, e.g. relating to governance issues, and administrative costs, e.g. audit fees for each vehicle. See Grabenwarter/Weidig (2005a), p. 69.Google Scholar
  37. 66.
    See Lin/ Smith (1998), p. 244.Google Scholar
  38. 68.
    See Hagenmüller (2004), p. 84.Google Scholar
  39. 69.
    See BVCA (2002), p. 7.Google Scholar
  40. 70.
    See Fenn/ Liang/ Prowse (1995), p. 36.Google Scholar
  41. 72.
    See Meyer/ Mathonet (2005), p. 31. Normally, the approval is given annually, not for two years in advance.Google Scholar
  42. 73.
    See Gompers/ Lerner (2004). The authors describe the role of private equity firms over a cycle, the so-called venture capital or private equity cycle.Google Scholar
  43. 74.
    See Gompers/ Lerner (2004), pp. 3 et seq; Fenn/Liang/Prowse (1995), p. 28.Google Scholar
  44. 75.
    For the investment process see also Wright/ Robbie (1998), p. 535; Fried/Hisrich (1994), p. 31; Tyebjee/Bruno (1984), p. 1053.Google Scholar
  45. 76.
    See Fingerle (2005), p. 77.Google Scholar
  46. 77.
    See Fenn/ Liang/ Prowse (1995), pp. 33.Google Scholar
  47. 78.
    See Smith/ Smith (2004), p. 546. An exit of the private equity investment is possible via an initial public offering, a trade sale to a strategic buyer, a secondary sale to another financial-oriented buyer, e.g. another private equity fund, a buyback of the stake of the former owners, or-in case of a failure-via a liquidation of the company. See Weitnauer (2001), p. 259.Google Scholar
  48. 79.
    Based on Berg (2005), p. 110; Achleitner (2002b), p. 748; Zehmke (1995), p. 103.Google Scholar
  49. 80.
    See Wright/ Pruthi/ Lockert (2005), p. 142.Google Scholar
  50. 81.
    See Weitnauer (2001), p. 266.Google Scholar
  51. 82.
    See Osnabrugge/ Robinson (2001), p. 27. Usually, these captive funds can still operate autonomously.Google Scholar
  52. 83.
    In case venture capitalists are controlled by an industrial organization, one speaks of a corporate venture capital fund. In addition to financial interests, corporate venture capital funds can also pursue strategic goals, e.g. access to new technologies, access to new products or services. Röper provides a detailed overview over corporate venture capital in Germany and the U.S. See Röper (2003).Google Scholar
  53. 84.
    Often semi-captive funds evolve from captive funds when these have a proven track record and their parent company takes third party money by inviting other investors to co-invest into the fund. See Bader (1996), p. 154.Google Scholar
  54. 85.
    See Osnabrugge/ Robinson (2001), p. 25.Google Scholar
  55. 87.
    See Brooks (1999), p. 100.Google Scholar
  56. 88.
    Mayer/Schoors/Yafeh who investigate the relation between the sources of funds and the investment activities of private equity funds find that funds which are mainly backed by corporate and private individuals target rather venture capital investments. If the funds are mainly backed by pension funds, insurance companies or banks, they tend to invest more in later stage activities. See Mayer/ Schoors/ Yafeh (2003), p. 4.Google Scholar
  57. 89.
    Including the university funds, endowments have contributed 11% of total funds raised by independent venture capital funds in the U.S. in 2002. See Gompers/ Lerner (2004), p. 11. In 2004, Yale’s university endowment had 18% of its asset under management in private equity, Harvard 13% and Stanford 10%. See Avida Advisors (2005), p. 13.Google Scholar
  58. 90.
    EVCA (2006c); EVCA (2002a). The figures show the distribution of different types of investors in European funds in percent raised from 1998 until 2006. However, they do not show the contribution of different investors to the total investment by all European investors in private equity. Unfortunately, these figures are not available.Google Scholar
  59. 91.
    See Grabenwarter/ Weidig (2005a), p. 146.Google Scholar
  60. 92.
    See Meyer/ Mathonet (2005), p. 48; Weidig/Mathonet (2004), p. 2.Google Scholar
  61. 93.
    See for a discussion of the benefits and costs of fund-of-funds for example Lai (2005); Meyer/Mathonet (2005), pp. 47 et seq. Once a decision to invest in private equity has been made, the investor needs to decide whether the portfolio is managed internally by its own staff or externally, through independent fund-of-funds managers. Alternatively, investors can use advisors or managed accounts to gain access to the asset class. Whereas advisors only assist the investor in selecting funds, managed accounts provide additional administrative support such as implementing control and reporting systems. The difference to investing in fund-of-funds is that investors still decide on the investments themselves. See Avida Advisors (2005), p. 17.Google Scholar
  62. 94.
    See for this and the following Barnes/ Menzies (2005), p. 213.Google Scholar
  63. 95.
    Barnes/Menzies argue that when investment teams mature and become more experienced, they establish a reputation and are able to raise external money. Consequently, there might be an evolutionary pathway for private equity investors from balance sheet over hybrid investors to specialist investors. This evolution is driven by the investment professionals at the institutions who are attracted by increased decision-power and increased remuneration. See Barnes/ Menzies (2005), pp. 216 et seq.Google Scholar
  64. 96.
    See for an introduction of the secondary markets for example von Daniels (2004); Clark/Kojima (2003). Chapter 3.7.3 examines the usefulness of the secondary market for fund investors’ active portfolio management.Google Scholar
  65. 97.
    See Meyer/ Mathonet (2005), p. 13. As will be outlined in more detail in chapter 4.3 which deals with the valuation of private equity investments, fund managers are discrete in determining a value for the investments.Google Scholar
  66. 98.
    See Burgel (2000), p. 5.Google Scholar
  67. 99.
    See Robbie/ Wright/ Chiplin (1999), p. 204. Due to the Freedom of Information Act in the U.S., public private equity investors such as public pension funds have been under pressure to disclose information on the performance of their private equity fund investments.Google Scholar
  68. 101.
    See Bance (2004), p. 7; Grabenwarter/Weidig (2005a), p. 10.Google Scholar
  69. 102.
    See Meyer/ Mathonet (2005), p. 60. In fact, there is evidence of a large dispersion of returns of different funds. See for example Kaserer/Diller (2004d), p. 9.Google Scholar
  70. 103.
    See Bance (2004), p. 7; Grabenwarter/Weidig (2005a), p. 10. If investors want to pursue an inhouse private equity management program, it is therefore required that they commit significant amounts of capital to the asset class in order to realize necessary economies of scale.Google Scholar
  71. 104.
    On average, investors in European private equity funds pay 14.7% of their invested capital as management fee. See Feinendegen/ Schmidt/ Wahrenburg (2003), p. 1177. Additionally, the fund investors usually get 20% of the net realized gain as profit share.Google Scholar
  72. 105.
    For fundamentals of the agency theory see Jensen/ Ruback (1983); Eisenhardt (1989). Sahlman analyzes the principle agent relationship between general and limited partners. See Sahlman (1990), pp. 493 et seq.Google Scholar
  73. 106.
    See Eisenhardt (1989), p. 58.Google Scholar
  74. 107.
    See Eisenhardt (1989), p. 61.Google Scholar
  75. 108.
    Based on Black/ Scholes (1973) the value of a call option is positively correlated with the volatility of the value of the underlying asset. See Sahlman (1990), p. 496.Google Scholar
  76. 109.
    See Meyer/ Mathonet (2005), p. 33.Google Scholar
  77. 110.
    See Gompers/ Lerner (1996), p. 483. Some fund investors argue that it may be not appropriate to charge a management fee of 2.5% and 20% of the profits if private equity firms invested in public securities as the investors could do that cheaper by themselves. However, this depends on the actual strategy of the funds and, of course, on the agreement between fund investors and managers.Google Scholar
  78. 111.
    See Grabenwarter/ Weidig (2005a), p. 78.Google Scholar
  79. 112.
    However, the general partners’ contribution of 1% of the whole fund is generally required. See Sahlman (1990), p. 490.Google Scholar
  80. 113.
    See Prowse (1998), p. 31.Google Scholar
  81. 114.
    See Grabenwarter/ Weidig (2005a), pp. 78 et seq.Google Scholar
  82. 115.
    See Sahlman (1990), p. 493.Google Scholar
  83. 116.
    Fama/Jensen state that in order to mitigate agency problems the principal and the agent sign a contract that specifies the rights of the agent, clarifies the performance criteria on which the agent will be evaluated, and defines the payoff functions for both parties. See Fama/ Jensen (1983), p. 302.Google Scholar
  84. 117.
    See Fenn/ Liang/ Prowse (1995), p. 38; Prowse (1998), p. 3. In public equity financing, the market for corporate control would also mitigate conflicts of interest between managers and investors. JENSEN/RUBACK describe it as a market where alternative management teams compete for the right to manage corporate resources. See Jensen/Ruback (1983), p. 6. In public corporations, the threat of a takeover might put pressure on the management teams to perform. However, the relevance of the market for corporate control as a mechanism to solve governance problems in private equity partnerships is still marginal. The secondary market for limited private equity partnership stakes is rather illiquid and, although a change of the management through the general partner could be triggered typically by a qualified majority vote of the limited partners, this rarely happens in reality. See Böhler (2004b), p. 77. However, as the private equity market evolves and the fund investors get more active, it is at least not unthinkable that the market for corporate control as a mechanism to solve governance issues becomes more important.Google Scholar
  85. 119.
    Based on Fenn/ Liang/ Prowse (1995).Google Scholar
  86. 120.
    See Prowse (1998), p. 32.Google Scholar
  87. 122.
    See Grabenwarter/ Weidig (2005a), p. 70.Google Scholar
  88. 123.
    See William M. Mercer Inc. (1997), pp. 117 et seq.Google Scholar
  89. 124.
    See Grabenwarter/ Weidig (2005a), pp. 72 et seq.Google Scholar
  90. 125.
    Based on Gompers/ Lerner (1996), p. 484; Feinendegen/Schmidt/Wahrenburg (2003), pp. 1171 et seq; Hagenmüller (2004), p. 181.Google Scholar
  91. 126.
    See Gompers/ Lerner (1996), p. 470.Google Scholar
  92. 127.
    See Gompers/ Lerner (1996), p. 464.Google Scholar
  93. 128.
    See Feinendegen/ Schmidt/ Wahrenburg (2003), p. 1190.Google Scholar
  94. 129.
    See Sahlman (1990), p. 493; Fenn/Liang/Prowse (1995), p. 41.Google Scholar
  95. 130.
    See Grabenwarter/ Weidig (2005b), p. 83. Chapter 3.5.1 provides insight about the role of advisory boards for monitoring the partnership.Google Scholar
  96. 132.
    See Meyer/ Mathonet (2005), p. 30.Google Scholar
  97. 133.
    See Smith/ Smith (2004), p. 481.Google Scholar
  98. 134.
    See Fenn/ Liang/ Prowse (1995), p. 38.Google Scholar
  99. 135.
    See Feinendegen/ Schmidt/ Wahrenburg (2003), p. 1176. In a study of European partnerships, the authors find that around 80% apply a management fee of 2.0% or 2.5%.Google Scholar
  100. 136.
    See Grabenwarter/ Weidig (2005a), p. 58. In practice, the total actual paid management fees vary across different funds, depending on the fee bases that are applied. See Feinendegen/Schmidt/Wahrenburg (2003), p. 1177.Google Scholar
  101. 137.
    See Feinendegen/ Schmidt/ Wahrenburg (2003), p. 1177; Gompers/Lerner (1999), p. 15. Under earlier agreements, the carried interest was sometimes based on the performance of individual investments (deal-by-deal carry) rather than based on the performance of the entire fund (fund-as-awhole carry). However, with a deal-by-deal carry system fund managers were more focused on maximizing returns of the most successful investments than of the total fund return. See Fenn/ Liang/Prowse (1995), p. 39.Google Scholar
  102. 138.
    See Meyer/ Mathonet (2005), p. 33. The hurdle rate is usually set at 6%–8%.Google Scholar
  103. 139.
    See Grabenwarter/ Weidig (2005a), p. 62.Google Scholar
  104. 140.
    See Grabenwarter/ Weidig (2005a), p. 64.Google Scholar
  105. 141.
    See Schell (2006), pp. 2/22 et seq. The details are set out by claw-back provisions in the limited partnership agreement.Google Scholar
  106. 142.
    See Meyer/ Mathonet (2005), p. 34. Typically, a contribution of 1% of the fund’s capital is regarded as appropriate. This depends on the personal wealth of the general partners and the size of the fund.Google Scholar
  107. 143.
    See Balboa/ Marti (2006), p. 5.Google Scholar
  108. 144.
    See Fenn/ Liang/ Prowse (1995), p. 36.Google Scholar
  109. 146.
    See Fenn/ Liang/ Prowse (1995), p. 36.Google Scholar
  110. 147.
    Reputation is a collective construct describing aggregate perceptions of third parties about the performance of the private equity company and its reliability. See Fingerle (2005), p. 35.Google Scholar
  111. 148.
    See Holmström/ Tirole (1989), pp. 76 et seq.Google Scholar
  112. 149.
    See Schmidt/ Wahrenburg (2004), p. 8.Google Scholar
  113. 150.
    See Smith/ Smith (2004), p. 495.Google Scholar
  114. 151.
    See Tuck (2004b). The authors base their results on a survey among general partners (n=117) and limited partners (n=97) in the U.S.Google Scholar
  115. 152.
    See Tuck (2004b), p. 4.Google Scholar
  116. 153.
    See Blaydon/ Wainwright (2004b), p. 19.Google Scholar
  117. 154.
    See Tuck (2004a), p. 3. On average, the legal costs for a limited partnership agreement are $260,000 for general partners and $18,000 for limited partners. See Tuck (2004b), p. 7.Google Scholar
  118. 155.
    See Blaydon/ Wainwright (2004b), p. 217. For detailed results see Tuck (2004b); Tuck (2004c); Tuck (2004d); Tuck (2004a).Google Scholar
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    See Tuck (2004b), pp. 3 et seq.Google Scholar
  120. 157.
    See Tuck (2004a), p. 9.Google Scholar
  121. 159.
    See Sharpe (1992), p. 7. An asset class comprises all investments that have similar characteristics, attributes and risk-return relationships. See Reilly/Brown (2003), p. 35.Google Scholar
  122. 161.
    See Achleitner/ Fingerle (2006), p. 3. There is no commonly accepted definition of the universe of alternative assets. Typically, it includes private equity, hedge funds, infrastructure investments, real estate, and other investment assets such as commodities, fine art, or wine.Google Scholar
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    See Hagenmüller (2004), p. 32; Gompers/Lerner (2001), p. 1; Bader (1996), p. 248.Google Scholar
  124. 163.
    See Markowitz (1952). Tax and legal constraints also need to be considered in the allocation decision. See Gompers/Lerner (2001), p. 2. However, these aspects are neglected here.Google Scholar
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    See Grabenwarter/ Weidig (2005a), p. 34. For an introduction to portfolio theory and the assumptions see for example Reilly/Brown (2003), pp. 209 et seq.Google Scholar
  126. 165.
    Instead, two commercial data vendors provide the main source of data on the venture capital industry, VentureXperts from Venture Economics and VentureSource from VentureOne. Venture Economics comprises cash flows from around 2,500 U.S. and European funds. VentureOne is a database on direct venture capital investments. It includes more than 17,000 financing rounds involving more than 8,000 companies. See Grabenwarter/ Weidig (2005a), p. 108. These databases mostly rely on the voluntary reporting of the funds and their investors. Other databases that academic researchers may have access to are provided by large investors. However, these databases are not published on an ongoing basis.Google Scholar
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    See Grabenwarter/ Weidig (2005a), p. 27. The authors provide a comprehensive list of existing risk-return studies in private equity. See Grabenwarter/Weidig (2005a), pp. 28 et seq.Google Scholar
  128. 167.
    These studies are mainly based on VentureOne data. They examine the gross-of-fee return of individual venture capital investments. COCHRANE for example bases his analysis on financing rounds of 7,765 companies and calculates mean average returns to be 59% with a standard deviation of 107%. See Cochrane (2005), p. 5. Other studies are for example Quigley/Woodward (2003); Woodward/Hall (2003); Peng (2001).Google Scholar
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    Important studies are Phalippou/ Zollo (2005); Kaplan/Schoar (2005); Kaserer/Diller (2004b); Ljungqvist/Richardson (2003); Jones/Rhodes-Kropf (2003).Google Scholar
  130. 169.
    See a: EVCA/ Thomson Financial (2006), p. 12; b: NVCA/Financial (2006), p. 2. The data is provided by VentureXperts. The comparison of returns of private equity with the benchmarks is made by calculating equivalent IRR returns for the benchmarks assuming the same cash flows as for the “all private equity” asset classes. For detailed information on the methodology see Scholar
  131. 170.
    See Grabenwarter/ Weidig (2005a), p. 20.Google Scholar
  132. 172.
    See Gompers/ Lerner (2001), p. 3. Some fund managers might be conservative in their approach to value investments whereas others are more aggressive.Google Scholar
  133. 173.
    See Ljungqvist/ Richardson (2003), p. 15. The returns are net of any management fees and carried interests and therefore represent the actual return to the limited partners.Google Scholar
  134. 174.
    See Ljungqvist/ Richardson (2003), p. 28. They interpret this as a premium for the illiquidity of the portfolio company investments.Google Scholar
  135. 176.
    A public market equivalent (PME) compares an investment in a private equity fund to an investment in public equity, usually a capital market index. KAPLAN/SCHOAR implement the PME calculation by investing all cash outflows of the fund at the total return to the S&P 500 and comparing the resulting value to the value of the cash inflows to the fund invested using the total return to the S&P 500. A fund with a PME that is smaller than one underperforms the S&P 500. See Kaplan/ Schoar (2005), p. 1797. For more information on the PME method see chapter Scholar
  136. 177.
    See Kaplan/ Schoar (2005), p. 1798. Their returns are also net of any fees.Google Scholar
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    See Kaserer/ Diller (2004c), p. 49. Their sample includes all funds that are liquidated or nonliquidated with a residual value not higher than 10%. Returns are net of any fees.Google Scholar
  138. 179.
    See Kaserer/ Diller (2004c), pp. 50 et seq.Google Scholar
  139. 180.
    See Kaserer/ Diller (2004b), p. 54. Their approach assumes that returns from private equity funds are reinvested in the public market index.Google Scholar
  140. 181.
    See Phalippou/ Zollo (2005), p. 8.Google Scholar
  141. 182.
    See Grabenwarter/ Weidig (2005a), p. 31.Google Scholar
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    See Grabenwarter/ Weidig (2005a), p. 33. Gompers/Lerner call this the stale price problem. See Gompers/Lerner (2001), p. 3.Google Scholar
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    See for example Gompers/ Lerner (2001).Google Scholar
  144. 185.
    See Kaserer/ Diller (2004b), p. 42. They assume that returns from private equity are reinvested in the indices.Google Scholar
  145. 186.
    See Grabenwarter/ Weidig (2005a), p. 33 for more details.Google Scholar
  146. 187.
    See Kaserer/ Diller (2004c), p. 70.Google Scholar
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    See Kaserer/ Wagner/ Achleitner (2003), p. 275.Google Scholar
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    See Avida Advisors (2005), p. 23. Based on a survey among 32 European investors, the authors found that 57% use qualitative approaches only.Google Scholar
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    See Weidig/ Mathonet (2004), p. 28. For the way in which the data is presented see Fingerle (2005), p. 93. The data is based on U.S. and European venture capital investments and on simulations for fund-of-funds investments. Return measure is the investment multiple total value to paid-in capital (TVPI). The total value including total distributions to fund investors plus the net asset value of the fund investment is related to the paid-in capital. See chapter 3.4.1 for more details on return measures in private equity.Google Scholar
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    See Laib (2003), p. 27; Hagenmüller (2004), p. 35.Google Scholar
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    See Laib (2003), p. 28.Google Scholar
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    See Meyer/ Mathonet (2005), pp. 83 et seq.Google Scholar
  156. 201.
    See Meyer/ Mathonet (2005), p. 85.Google Scholar
  157. 202.
    Kaserer/Diller show for their sample of European funds a first quartile return to be 4.47% and the third quartile return to be 17.13%. See Kaserer/ Diller (2004a), p. 30. Ljungqvist/Richardson calculate a first quartile return of 9.85% and a third quartile return of 28.59%. See Ljungqvist/Richardson (2003), p. 35.Google Scholar
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