Skill and luck in private equity performance

We evaluate the performance of private equity (“PE”) funds, using a variance decomposition model to separate skill from luck. We find a large amount of long-term persistence, and skilled PE firms outperform by 7% to 8% annually. But this performance is noisy, with a large amount of luck, so top-quartile performance does notnecessarily imply top-quartile skills, making it difficult for investors (“LPs”) to identify skilled PE firms. Buyout (“BO”) firms show the largest skill differences, implying the greatest long-term persistence. Venture capital (“VC” ) performance is the mostnoisy, making good VC firms hardest to identify, and implying the smallest amount of investable persistence.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


Mission en strategy           •           Network           •           Organisation           •          Magazine
Board Brief            •            Actionplan 2023-2027           •           Researchagenda


Our partners

B20211216_shell download
B20200924_Ortec Finance logo 250px_banner_small
View all partners