Graduate School of Management
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NBER Working Papers and Publications
|November 2011||A Model of Private Equity Fund Compensation|
with Wonho Wilson Choi, Andrew Metrick: w17568
This paper analyzes the economics of the private equity fund compensation. We build a novel model to estimate the expected revenue to fund managers as a function of their investor contracts. In particular, we evaluate the present value of the fair-value test (FVT) carried interest scheme, which is one of the most common profit-sharing arrangements observed in practice. We extend the simulation model developed in Metrick and Yasuda (2010a) and compare the relative values of the FVT carry scheme to other benchmark carry schemes. We find that the FVT carry scheme is substantially more valuable to the fund managers than other commonly observed (and more conservative) carry schemes, largely due to the early timing of carry compensation that frequently occurs under the FVT scheme. Interestingly,...
Published: A Model of Private Equity Fund Compensation A. Metrick, W. W. Choi, and A. Yasuda Global Macro Economy and Finance Type: Article 2012
|December 2010||Venture Capital and Other Private Equity: A Survey|
with Andrew Metrick: w16652
We review the theory and evidence on venture capital (VC) and other private equity: why professional private equity exists, what private equity managers do with their portfolio companies, what returns they earn, who earns more and why, what determines the design of contracts signed between (i) private equity managers and their portfolio companies and (ii) private equity managers and their investors (limited partners), and how/whether these contractual designs affect outcomes. Findings highlight the importance of private ownership, and information asymmetry and illiquidity associated with it, as a key explanatory factor of what makes private equity different from other asset classes.
Published: “Venture Capital and other Private Equity: a Survey” (wi th Ayako Yasuda), European Financial Management 17, 619 - 654 . citation courtesy of
|July 2010||The Behavior of Intoxicated Investors: The role of institutional investors in propagating the crisis of 2007-2008|
with Alberto Manconi, Massimo Massa: w16191
Using a novel data of institutional investors' bond holdings, we examine a transmission of the crisis of 2007-2008 from the securitized bond market to the corporate bond market via joint ownership of these bonds by investors. We posit that, ceteris paribus, corporate bonds held by investors with high exposure to securitized bonds and liquidity needs experience greater selling pressure and price declines (yield increases) at the onset of the crisis. We further test predictions of a model of dynamic asset liquidation: Investors with large enough future liquidity shocks retain liquid assets, and instead sell assets that have relatively high temporary price impacts of trading. Mutual funds with higher sensitivity of pay to performance held higher portions of their portfolios in securitized bon...
|June 2010||The Behavior of Intoxicated Investors: The Role of Institutional Investors in Propagating the Crisis of 2007-2008|
with Alberto Manconi, Massimo Massa
in Market Institutions and Financial Market Risk, Mark Carey, Anil Kashyap, Raghuram Rajan, and René Stulz, organizers