Cyclicality, Performance Measurement, and Cash Flow Liquidity in Private Equity

David Robinson and Berk A. Sensoy

No 17428, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Public and private equity waves move together. Using quarterly cash-flow data for a large sample of venture capital and buyout funds from 1984-2010, we investigate the implications of this co-cyclicality for understanding private equity cash flows and performance. In the cross-section, varying the beta used to assess relative performance has a large effect on inference near a beta of zero, but only a modest effect for more reasonable beta estimates. A similar message comes through in the time series. Though funds raised in hot markets underperform in absolute terms, this underperformance is sharply reduced by a comparison to the S&P 500, and disappears entirely at the levels of beta recently estimated in the literature. These findings imply that high private equity fundraising forecasts both low private equity cash flows and low market returns, suggesting a positive correlation between private equity net cash flows and public equity valuations. Examining cash flows directly, we find that this is indeed the case. While both capital calls and distributions rise with public equity valuations, distributions are more sensitive than calls. Net cash flows are therefore procyclical and private equity funds are liquidity providers (sinks) when market valuations are high (low). Venture cash flows and performance are considerably more procyclical than buyout. Debt market conditions also have a significant impact on private equity cash flows. At the same time, most cash-flow variation is idiosyncratic across funds, and most predictable variation is explained by the age of the fund.

JEL-codes: G10 G11 G20 G24 (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-bec
Note: AP CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Published as David T. Robinson & Berk A. Sensoy, 2016. "Cyclicality, performance measurement, and cash flow liquidity in private equity," Journal of Financial Economics, vol 122(3), pages 521-543.

Downloads: (external link)
http://www.nber.org/papers/w17428.pdf (application/pdf)

Related works:
Journal Article: Cyclicality, performance measurement, and cash flow liquidity in private equity (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:17428

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w17428

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().