On the Performance of Private Equity Investments: Does Market Timing Matter?

Abstract

This paper investigates the market timing abilities of private equity fund managers using a unique set of detailed cash-flow data. We show that investment timing has an impact on the performance of venture capital funds. Surprisingly, divestment timing has no such impact on returns. For later-staged buyout funds our analysis reveals that fund performance is not driven by market timing but is significantly related to the experience of the individual fund manager. Thus, for successful investing into more mature portfolio companies, getting access to better deal flow and managing the investment affect the resulting success of these investments. Our results complement other recent findings on the performance of private equity funds.

Keywords: Private equity, Venture capital, Fund management, Market timing

JEL Classification: G23, G11