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Do Private Equity Managers Have Superior Information on Public Markets?

Published online by Cambridge University Press:  03 February 2021

Oleg R. Gredil Open the ORCID record for Oleg R. Gredil [Opens in a new window]
Oleg R. Gredil*
Affiliation:
Tulane University A. B. Freeman School of Business
*
[email protected] (corresponding author)
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Abstract

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Using cash flows from a large sample of buyout and venture funds, I show that private equity (PE) distributions predict returns in the industries of funds’ specialization. My tests distinguish timing skill from reactions to market conditions and spillover effects of PE activity. Fund managers foresee comparable public firms’ earnings but sell at the industry peaks only if they have performance fees to harvest. These results have implications for manager selection and improve our understanding of PE fund returns and the role of PE in capital markets.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 1 , February 2022 , pp. 321 - 358
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

I especially thank Greg Brown for his support and guidance. I thank Jarrad Harford (the editor) for his consideration and advice. Helpful comments and suggestions were provided by the anonymous referees, Yan Alperovych, Francesca Cornelli, Nickolay Gantchev, Eric Ghysels, Victoria Ivashina, Pab Jotikasthira, Nishad Kapadia, Steven Kaplan, Arthur Korteweg, Leo Krasnozhon, Cami Kuhnen, Christian Lundblad, Paige Ouimet, Urs Peyer, Robert Prilmeier, Adam Reed, David Robinson, Berk Sensoy, Merih Sevilir, Morten Sorensen, Geoffrey Tate, Santiago Truffa, William Waller, and Morad Zekhnini and seminar participants at the 2015 Global Private Investing Conference, the University of North Carolina, Arizona State University, Fordham University, Tulane University, the 2015 Financial Management Association (FMA) Meeting, the 2016 Financial Intermediation Research Society (FIRS) Meetings, and the 2018 Paris Hedge Fund and Private Equity Research Conference. I am grateful to Burgiss for data access and to Wendy Hu for providing research assistance. This research has benefited from the support of the Private Equity Research Consortium (PERC) and the UAI Foundation. An earlier version of this article was circulated under the title “Market Timing and Agency Costs: Evidence from Private Equity.” All errors are my own.

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