Do private equity fund managers earn their fees? Compensation, ownership, and cash flow performance

Scholarly Edition

We study the relations between management contract terms and performance in private equity using new data for 837 funds from 1984-2010. We find no evidence that higher fees or lower managerial ownership are associated with lower net-of-fee performance. Nevertheless, compensation rises and shifts to performance-insensitive components during fundraising booms. Further, the behavior of distributions around contractual fee triggers is consistent with an underlying agency conflict between investors and fund managers. Our evidence suggests that managers with higher fees deliver higher gross performance, and highlights that agency costs are an inevitable consequence of the information frictions endemic to agency relationships. © 2013 The Author 2013.

Full Text

Duke Authors

Cited Authors

  • Robinson, DT; Sensoy, BA

Published Date

  • November 1, 2013

Start / End Page

  • 2760 - 2797

Digital Object Identifier (DOI)

  • 10.1093/rfs/hht055

Citation Source

  • Scopus