Publications
Publications
- 2020
- HBS Working Paper Series
How Do Private Equity Fees Vary Across Public Pensions?
By: Juliane Begenau and Emil Siriwardane
Abstract
We document large variation in net-of-fee performance across public pension funds investing in the same private equity fund. In aggregate, these differences imply that the pensions in our sample would have earned $45 billion more – equivalent to $8.50 more per $100 invested – had they each received the best observed terms in their respective funds. There are also large pension-effects in the sense that some pensions systematically pay more fees than others when investing in the same fund. With better terms, the 95th percentile pension would have earned $14.91 more per $100 invested compared to $1.12 for the 5th percentile pension. Pension characteristics such as commitment size, overall size, relationships with fund managers, and governance account for a modest amount of the pension effects, meaning similar pensions consistently pay different fees.
Keywords
Pension Funds; Cost Of Private Investment Vehicles; Price 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 July 2020.)
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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