London Business School Coller Institute of Private Equity

LONDON BUSINESS SCHOOL’S COLLER INSTITUTE OF PRIVATE EQUITY UNVEILS NEW GROUND BREAKING RESEARCH ON PRIVATE EQUITY PERFORMANCE

16 February 2012

London Business School’s Coller Institute of Private Equity unveils new ground breaking research on private equity performance
-    Outperformance of 8% against S&P 500
-    Underlying problems with previous research studies

In a Coller Institute of Private Equity event on 13 February Chris Higson, a professor in the accounting group at London Business School, presented a ground breaking piece of academic research on private equity performance.

This research paper, co-authored with Dr Ruediger Stucke of Oxford University, sheds new light on private equity’s performance. Some influential existing academic studies have concluded that returns from private equity, net of fees, have been no better than public market measures such as the S&P 500. The authors show that these papers have significantly understated private equity returns as a result of problems with the underlying data.

Professor Higson and Dr Stucke’s study uses a unique, high quality data set of fund cash flows. The paper includes a complete account of the performance of US buyout funds since 1980 using Cambridge Associates’ private equity fund database and a hand-collected sample from various LPs. The authors calculate IRRs and money multiples for sample funds by vintage year, and benchmark against the S&P 500 using a public market equivalent approach.

The authors show that the IRRs of US buyout funds with vintages 1980 to 2005 display significant outperformance of around 8% against the S&P 500. Inclusion of the years 2006 to 2008 significantly reduces overall outperformance to around 5%. The results also show a marked variation in performance of funds with only 60% of funds displaying a positive IRR spread against the stock market comparator.

This is an important study as it reports new findings about the performance of private equity, an asset class whose performance has been problematic to measure and benchmark due to opaque information and no active market.

Professor Higson commented: “For many years there has been ambiguity in the evidence about private equity performance, that has been troublesome both for the industry itself and for commentators trying to understand the economics of buyouts. This paper finally resolves that issue and can be taken as definitive. “

A presentation from the event is available on www.collerinstitute.com. The research paper will be available shortly.

Contact:  Hans Holmen, Executive Director, Coller Institute of Private Equity
Phone: +44(0)207 70008127
Email: hholmen@london.edu

About the Coller Institute of Private Equity
The Coller Institute of Private Equity is London Business School’s research centre on private equity. The Institute is the forum of choice for the exchange of views and analysis of trends and policy issues in the industry. Its location in London gives it a unique opportunity to bring together practitioners, policy makers, regulators, senior executives and graduate students to conduct research and share information in an independent forum.

About London Business School
London Business School's vision is to have a profound impact on the way the world does business. The School is consistently ranked among the best in the world for its full-time MBA programme*. In research, the School is ranked top ten and holds the highest average research score of any UK academic institution**.

The School's faculty, from over 30 countries, is grouped into seven subject areas – Accounting; Economics; Finance; Management Science and Operations; Marketing; Organisational Behaviour; and Strategy and Entrepreneurship. Additionally it has four research centres: Aditya Birla India Centre, Centre for Corporate Governance, Coller Institute of Private Equity, and Deloitte Institute of Innovation and Entrepreneurship.

Studying at the School provides access to an unmatched diversity of thought. With a presence in four international cities – London, New York, Hong Kong and Dubai – the School is well positioned to equip students from more than 100 countries with the capabilities needed to operate in today’s business environment. Students further benefit from our 33,500 alumni from more than 130 countries, who provide a wealth of knowledge, business experience and worldwide networking opportunities.

The School awards over 1,000 degrees every year, across MBA, Executive MBA, EMBA-Global, Masters in Finance, Masters in Management, Sloan MSc and PhD programmes. The Executive Education team offers a portfolio of over 25 open programmes as well as custom-designed programmes developed to meet the specific needs of individuals and their organisation. Annually, over 7,000 participants attend executive programmes that are led by many of the world’s leading business thinkers.

www.london.edu
 
Media Contacts:
Katherine Lakeland             
Press Officer
E: klakeland@london.edu
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*London Business School was ranked number one globally for its MBA programme in 2009, 2010 and 2011
** Research Assessment Exercise (RAE) 2008

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