Antoinette, in our earliest interview with you – in issue two – we talked about the findings of your research into LP performance. Further research has built on that over the years. So where are we today with understanding how LPs perform in PE?
“Our research from 2005 showed that the PE programmes of endowments and foundations performed better than those of other LPs, often because of the resources they had. David Robinson built on that by finding that even within endowments and foundations, performance was heterogeneous. Josh and I then carried out research that showed that, as discretionary vehicles and feeder funds have proliferated, who you are as an LP has a big effect on your performance because that determines what GPs will offer you in these vehicles. One of the most striking findings was that LPs in the same fund had differing performance from the same GP and the same fund because of these new fund structures.”
Antoinette Schoar
Persistence of GP performance is another area where we have seen quite a lot of research. What do the results tell us today about how much LPs can rely on past performance?
“Our research from 2005 showed that the PE programmes of endowments and foundations performed better than those of other LPs, often because of the resources they had. David Robinson built on that by finding that even within endowments and foundations, performance was heterogeneous. Josh and I then carried out research that showed that, as discretionary vehicles and feeder funds have proliferated, who you are as an LP has a big effect on your performance because that determines what GPs will offer you in these vehicles. One of the most striking findings was that LPs in the same fund had differing performance from the same GP and the same fund because of these new fund structures.”
Antoinette Schoar
“We still see performance persistence in VC, but we don’t see it in buyout funds at the time of fundraising. That makes it harder to predict the winners in buyout funds. I think some of this stems from the fact that companies selling to buyout firms are completely cashing out and so often take the highest bid in an auction. It’s harder to gain an advantage beyond that. However, in VC, the stakes companies sell to VC firms are much smaller, in the order of 20% rather than 100%. As a result, founders care more about the value the VC firm brings to their remaining shares. They may very well prefer a lower valuation from a well-known VC firm to a higher price from an investor with less of a reputation.”
Steven Kaplan