Private Equity Thesis
For my master thesis I have to write about Private Equity performance. Someone suggested to look at Private Equity deals and the performance of those portfolio companies, but I think data is limited on this. An alternative is to look at PE funds and their performance (using the IRR). These can be found on databases like Preqin. Does anybody have an suggestion on what is best to research and what is an interesting topic?
Regards, Derk
Doing PortCo level analysis will be extraordinarily tedious and in most cases not really possible. Fund level analysis with Preqin is definitely the way to go.
It might be interesting to look at funds with vintages before, during, and shortly after the crisis and see if there is any trend. Could do this across strategies/industry focus too. Would be kind of like wine vintages and regions.
Another idea, though I think data collection would be much more difficult, would be to compare funds that had a significant number of portcos that do bolt on acquisitions compared to funds with portcos that didn't.
I would be curious to see returns based on firm organizational structure (e.g. generalists vs industry teams)
Just curious - what masters program are you in?
I am in my master Finance at the University of Amsterdam.
don't just look at IRR, look at multiple of invested capital. as someone who places PE with investors, this is by far the more relevant number.
I think what you'll find is returns will depend on the vintage and that private market valuations are roughly correlated with public market valuations. one thing that would be interesting is to have some empirical data on buyout funds' EV/EBITDA ratios versus say the shiller PE and the subsequent correlation to performance, if any.
I'd also be curious to see if there's a size advantage, similar to the "small cap effect" in public markets. my gut tells me that middle market will have the best returns, but I don't have any data to support/refute this.
thebrofessor For what it's worth, you're correct. The middle market is where the outperformance really lies today. There's fascinating data on this in paid databases, but I obviously can't share a log-in here. Thought I'd share that to confirm your suspicion for you.
The classic inverse correlation between fund size and performance holds true.
Here is an example of fund performance https://www.calpers.ca.gov/page/investments/asset-classes/private-equit…
Topics you can write about: 1. Whether co-investments in PE is good 2. Corporate governance in PE 3. Whether PE or a family office is a better model 4. VC vs Corporate Development (Corporate VC)
I always like reading on people trying to quantify the risk of private equity to assess it's risk/reward versus other investments. It's actually very difficult to quantify PE risk well. There are various ways that you can do it, giving a decent amount to write about.
Thanks for all your responses! I will go for the fund performance because portfolio company data is too hard to find. Some interesting topics to write about are the capital inflows after a good performance period or the performance of funds with vintage years around the crisis. Does anyone have more suggestions on fund performance?
Thanks! Derk
On top of Calpers, another website you can check is Cambridge Associates e.g.
http://www.cambridgeassociates.com/wp-content/uploads/2015/07/Public-Gl…
PE thesis subject (Originally Posted: 04/18/2017)
Hi All,
I am planning to write my thesis about PE fund performance. Does anybody have any suggestions (research questions) on this topic? I was thinking about the effect of certain characteristics of funds on fund performance, but this seems a little broad and is not really a research question.
Thanks in advance.
Regards, Derk
You could research whether fund size has a significant impact on fund performance. Anecdotally, they say too much money chasing a limited set of opportunities can lead to depressed returns. It might be interesting to test whether fund size and fund performance are indeed negatively related. You could also test whether the % growth in current fund size over previous fund size is negatively related with fund performance. The idea here is that a lot of good GP's tend to lose edge and fall victim to their own prior successes if they grow their fund size beyond what they can reasonably invest and manage well. In both cases, you will want to, of course, control for extraneous variables (e.g. vintage year, geographical focus if any, industry focus if any).
There is some great information on WSO which could help you with your thesis
See https://www.wallstreetoasis.com/forums/private-equity-thesis Or https://www.wallstreetoasis.com/forums/private-equity-thesis-help
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