Notes
1 This chapter relies heavily on two papers written by my partner at Greycourt, David Lovejoy, from which I have also borrowed several charts. See Greycourt White Paper No. 40: Private Equity Investing (April 2009), and Greycourt White Paper No. 45: Secondary PE Investing (2011), both available at www.Greycourt.com.
2 And this return disparity is understated as a result of survivorship bias; that is, the worst firms went out of business and their (lousy) returns are no longer included in the database.
3 In Chapter 19, I divide a family investment portfolio into assets that are designed to support current spending, assets that are designed to maintain family wealth over time in the face of inflation, and assets that hold out the possibility of increasing the family's wealth; that is, aspirational assets.
4 See Steven N. Kaplan and Antoinette Schoar, “Private Equity Performance: Returns, Persistence, and Capital Flows,” The Journal of Finance 60, no. 4 (2005): 1791–1823.
5 Fortunately, most PE funds stop earning fees after about 15 years, giving the fund managers a serious incentive to bring the final investments to an end—if necessary, by selling them into the secondary market.
6 Remarkably, many otherwise smart institutions had failed to consider the possibility that distributions from PE funds could stop while capital calls could continue, and that this phenomenon could happen at a time when the public equity markets were down substantially (the so-called “denominator effect”). ...
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