Publications
Publications
- 2020
- HBS Working Paper Series
How Do Private Equity Fees Vary Across Public Pensions?
By: Juliane Begenau and Emil Siriwardane
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
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
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.