RT Journal Article
SR Electronic
T1 Private Equity Performance and the Effects of Cash-Flow Timing
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP jpm.2022.1.395
DO 10.3905/jpm.2022.1.395
A1 Stephannie Larocque
A1 Sophie Shive
A1 Jennifer Sustersic Stevens
YR 2022
UL https://pm-research.com/content/early/2022/07/12/jpm.2022.1.395.abstract
AB Private equity (PE) firms have discretion over the timing of their funds’ capital calls and distributions, making the popular internal rate of return (IRR) an incomplete measure of PE fund performance. Do investors avoid the textbook pitfalls of the IRR when cash-flow timing is partly endogenous? In a comprehensive sample of 6,945 funds, the authors find that more than half of the funds’ IRR is attributable to timing, with substantial variation. The timing component persists across a PE firm’s funds and facilitates fundraising.