TY  - JOUR
AU  - Robinson,David T.
AU  - Sensoy,Berk A.
TI  - Cyclicality, Performance Measurement, and Cash Flow Liquidity in Private Equity
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17428
PY  - 2011
Y2  - September 2011
UR  - http://www.nber.org/papers/w17428
L1  - http://www.nber.org/papers/w17428.pdf
N1  - Author contact info:
David T. Robinson
Fuqua School of Business
Duke University
100 Fuqua Drive
Durham, NC 27708
Tel: 919/660-8023
Fax: 919/684-2818
E-Mail: davidr@duke.edu

Berk Sensoy
Ohio State University
2100 Neil Ave.
Columbus, OH 43210
E-Mail: sensoy_4@fisher.osu.edu
AB  - 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.
ER  -