“Performance Persistence in Private Equity Funds” by Chung Ji Woong
Chung Ji Woong
The Chinese University of Hong Kong
Performance persistence in the private equity industry is short lived. Current fund performance is positively and significantly associated with the performance of the first follow-on fund, but not with that of the second or third follow-on funds. In addition, the commonality of market conditions between two successive funds largely explains performance persistence, and capital chases past performance and excessive fund growth, conditional on past performance, erodes performance and persistence. The findings are not conclusive about whether general partners have proprietary skills but have important implications for investors in the private equity industry in their capital allocation decision.