Publications
Publications
- 2020
- HBS Working Paper Series
How Do Private Equity Fees Vary Across Public Pensions?
By: Juliane Begenau and Emil Siriwardane
Abstract
We provide evidence that investment fees vary within private equity funds. Net-of-fee return clustering suggests that 70% of funds group investors into two fee-tiers that vary along both fixed and variable components. Managers of venture capital funds and those with high past performance are less likely to tier their investors. Some investors consistently earn higher net-of-fee returns relative to others within their funds. Investor size, experience, and past performance explain some but not all of this effect, suggesting that unobserved traits like negotiation skill or bargaining power materially impact the fees investors pay in private equity.
Keywords
Pension Funds; Cost Of Private Investment Vehicles; Fee Dispersion; Public Finance; Private Equity; Investment Funds
Citation
Begenau, Juliane, and Emil Siriwardane. "How Do Private Equity Fees Vary Across Public Pensions?" Harvard Business School Working Paper, No. 20-073, January 2020. (Revised February 2021.)
Supplemental Information
In this appendix, we provide details about the underlying data used in the main text and discuss several quality checks that we perform on this data. We also document large within-fund dispersion in net-of-fee returns using several alternative return metrics that are popular within the private equity industry, including a return measure based only on realized cash distributions (DVPI). The pension effects documented in the main text are also strong when: (i) using DVPI to measure returns; (ii) flexibly adjusting for size and proxies for risk aversion; and (iii) controlling for pension expectations of private equity as an asset class. Finally, we show that within funds raised after 2010, pensions that have any mention of performance fees (carry) in their annual reports outperform those that do not.
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