Saturday, August 7, 2010

Two Recent Studies Conclude that Private Equity Managers' Fees are (1) Misaligned with PE Investor Returns and (2) Surprise! ... Excessive

The Economist describes two new studies on the misalignment of PE managers' fees and PE investor returns:

Both studies conclude that PE manager compensation, as conventionally structured, is excessive by a number of analytical measures. And one of the studies takes matters further: according to The Economist, the study's author believes that some PE funds' internal rates of return are less than advertised.

One study, by Peter Morris, a former Name Brand Bank banker, is behind a pay wall and will set you back 25 pounds sterling. The other study, by Shahin Shojai et al., is available for free download via SSRN. Citations to both studies appear at the end of The Economist article.

Most of The Economist article's "reader comments" are worthwhile and several are highly entertaining. Many of the comments touch on the political, social and other factors that cause pension funds and other institutional investors - all purportedly "sophisticated" - to say yes to private equity investing.

1 comment:

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