Adveq and Coller Institute have published a new report on LPs and PE performance links using SEC data, which only recently became available. The study took a deep dive into the data covering 3,847 US-based private equity advisors. The goals were to expose common GP over-performance characteristics and glean some insights into the LP universe, particularly pension funds, targeting US PE. Here are the key findings on what drives returns, according to the study. Info about LPs can be found in the report here.
- A higher capital commitment by advisors to the private equity funds they manage correlates with better performance. More “skin in the game” better aligns the incentives of the advisor with the investors.
- Specialization in PE is associated with higher return performance
- Smaller private equity firms have better incentive alignment (high investment and high ratio of portfolio managers to capital)
- Lack of regulatory compliance hurts performance (compliance means fewer felonies and legal issues)