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  • 2020
  • Working Paper
  • HBS Working Paper Series

How Do Private Equity Fees Vary Across Public Pensions?

By: Juliane Begenau and Emil Siriwardane
  • Format:Print
  • | Language:English
  • | Pages:68
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Abstract

We study how investment fees vary within private-capital funds. Net-of-fee return clustering suggests that most funds have two tiers of fees, and we decompose differences across tiers into both management and performance-based fees. Managers of venture capital funds and those in high demand are less likely to use multiple fee schedules. Some investors consistently pay lower fees 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 that investors pay to access private markets.

Keywords

Pension Funds; Fee Dispersion; Search And Negotiation Frictions; 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 March 2022.)

Supplemental Information

Internet Appendix
In this appendix, we investigate other sources of within-fund return variation and discuss how they would impact our main conclusions. We then provide more detail about the contracting environment in private-market funds. We also present several supplementary results, including: (i) robustness tests using other unsupervised learning techniques to identify return clusters; (ii) whether net-of-fee returns clusters within funds are present using alternative measures of returns; (iii) an analysis of how commitment size determines assignment to management-fee tiers; (iv) tests showing that pension effects are predictable out-of-sample and exist with alternative measures of returns; and (v) an analysis of whether characteristic-adjusted pension effects are sensitive to how returns are measured.
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About The Author

Emil N. Siriwardane

Finance
→More Publications

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    Segmented Arbitrage

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    • July 2021
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    Pershing Square's Pandemic Trade (B)

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More from the Authors
  • Limits to Bank Deposit Market Power By: Juliane Begenau and Erik Stafford
  • Segmented Arbitrage By: Emil Siriwardane, Adi Sunderam and Jonathan Wallen
  • Pershing Square's Pandemic Trade (B) By: Emil N. Siriwardane, Luis M. Viceira and Dean Xu
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