Study: Private equity managers’ incentives may be twice as high a previously thought

Mar 17th, 2010 | Filed under: Academic Research, Private Equity, Today's Post | By:
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Investors in alternative investments, like their mutual fund counterparts, are often accused of chasing performance. In the world of hedge funds, this means that managers are often thought to focus too much on monthly performance. And why not? Since most hedge funds are open-ended, they are always trying to impress potential investors. Positive monthly returns are music to a hedge fund marketer’s ears.

But what if the marketing process only happens once every three or four years?  That’s the world faced by most private equity and real estate funds.  Due to the illiquid nature of their holdings, these alternative investments need to open, raise capital, and close to new investments often within a few months. As you can imagine, this makes the performance of previous funds critical in the marketing of new funds. More…

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