Chair of

Entrepreneurial Finance and Corporate Finance

What drives private-equity performance persistence?

Since Kaplan and Schoar's influential article in 2005, which explored fund performance persistence in the US private equity (PE) industry, several subsequent studies have further investigated this issue. These studies have examined both the performance persistence at the fund level and the level of individual portfolio company investments. The question of whether there is performance persistence is of great importance as it suggests that certain fund managers consistently outperform their peers over an extended period. Performance persistence implies that past performance can serve as a reliable predictor of future performance. In this research stream, the primary objective is to identify the factors that drive performance persistence in private equity. Understanding these drivers can contribute to making informed investment decisions and assessing the potential for sustained outperformance in private equity funds. For buyout investments, our findings indicate that performance and persistence are significantly influenced by the 'de-leveraging' component. This refers to the portfolio companies' ability to manage high debt burdens at the time of investment, such as in leverage buyouts, and subsequently reduce leverage before private equity backers exit their investments.