Private Equity Found Manager Specific Determinants of Boyout Fund Performance

Specialeforsvar ved Tamara Savic

Titel: Private Equity Fund Manager Specific Determinants  of Buyout Fund Performance

Abstract: Information asymmetries and lack of complete transparency, makes the private equity industry puzzling, and drivers behind private equity generated returns are often investigated. As investment decisions have to be made prior to the private equity fund engaging in any investment activities, investors have to rely on historical factors, in providing them with proper indications of future performance. Performing rigorous due diligence is an important tool in outlining these factors. In order to enhance the probability of committing to a top performing fund, investors must know what to look for and which drivers are most prone to be associated with higher returns. This thesis aims to uncover some of the determinants behind private equity generated returns in buyout funds. This is done by examining different qualitative and quantitative private equity fund manager specific characteristics, and their impact on performance. A multiple linear regression is constructed to test the significance of these drivers, based on a novel, manually collected, sample comprising of 105 buyout funds. The results from the regression show, that long manager experience serves as a positive indicator of future performance, and that better performance is significantly associated with higher carried interest rates. Performance of a buyout fund showed to be impacted significantly by the level of catch-up implemented, conditional on prior performance of the predecessor fund. Moreover, results pointed towards better performance being obtained, when a manager's growth in fund sizes are kept at a minimum. This thesis further shows statistical evidence of performance being positively associated, with hurdle rates set at exactly 8% and investment periods of 5 years. The results of this study, are indicative of patterns worth examining under due diligence, and provide guidance of potential issues and advantages to be aware of, when selecting which funds to commit to in the future.

Vejleder: Søren Hovgaard, Ø.I.
Censor: Bodil Olai Hansen, CBS