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Journal of Finance Vol. 74 No. 6 2019

Measuring Institutional Investors’ Skill at Making Private Equity Investments

Daniel R. Cavagnaro; Berk A. Sensoy; Yingdi Wang; Michael S. Weisbach1,2,3,4,5,6

1 California State University System · 2 California State University, Fullerton · 3 Universitatea Andrei Şaguna · 4 Kaplan (United States) · 5 Marymount University · 6 University of Hong Kong

Abstract

Using a large sample of institutional investors’ investments in private equity funds raised between 1991 and 2011, we estimate the extent to which investors’ skill affects their returns. Bootstrap analyses show that the variance of actual performance is higher than would be expected by chance, suggesting that some investors consistently outperform. Extending the Bayesian approach of Korteweg and Sorensen, we estimate that a one‐standard‐deviation increase in skill leads to an increase in annual returns of between one and two percentage points. These results are stronger in the earlier part of the sample period and for venture funds.

DOI
10.1111/jofi.12783
Volume
74
Issue
6
Pages
3089-3134
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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