TY - JOUR T1 - The Evolution of Private Equity Fund Value JF - The Journal of Alternative Investments DO - 10.3905/jai.2021.1.121 SP - jai.2021.1.121 AU - Gregory W. Brown AU - Wendy Y. Hu AU - Jian Zhang Y1 - 2021/02/11 UR - https://pm-research.com/content/early/2021/02/11/jai.2021.1.121.abstract N2 - This article provides the first large-sample analysis of buyout and venture capital fund values over their lifetimes. Specifically, we examine fund future investment multiples (TVPIs), internal rates of return (IRRs), and direct-alphas based on the current reported net asset values (NAVs) at each year of a fund’s life. Using a sample of 1,400 mature buyout and VC funds, we find that the typical fund experiences a fall-off in future returns after it is about seven to eight years old. However, the remaining performance is highly variable for funds of all ages and the dispersion in returns also tends to increase after funds are about eight years old. We examine the cross-sectional determinants of the remaining fund value and find that several fund-specific and market-wide factors determine future performance and that these vary by type and age of fund. For example, young funds tend to be harmed by high market-wide dry powder levels, whereas older funds appear to benefit.TOPICS: Private equity, performance measurementKey Findings▪ The typical fund experiences a fall-off in returns after it is about seven to eight years old. This is true for both VC and buyout funds.▪ Contrary to common wisdom, the cross-sectional dispersion of fund performance measured by future internal rate of return and direct alpha tends to increase, not decrease, for funds more than five years old.▪ A wide variety of market-wide and fund-specific factors predict future fund performance. These include to-date distributions, dry powder, previous fund performance, fund size, general partner fundraising activity, previous public market stock returns, and credit spreads. Relevant factors are different for VC funds and buyout funds and can vary systematically over funds’ lifecycle. ER -