Fee Variation in Private Equity |
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| Authors: | JULIANE BEGENAU EMIL N SIRIWARDANE |
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| Institution: | 1. Correspondence: Juliane Begenau, Graduate School of Business, Stanford University, 655 Knight Way, Stanford CA 94305;2. e-mail: begenau@stanford.edu.;3. Juliane Begenau is from Stanford University, NBER, and CEPR. Emil Siriwardane is from Harvard University and NBER. This paper is forthcoming at The Journal of Finance. We would like to thank Stefan Nagel (Editor), an anonymous Associate Editor, two anonymous referees, our discussants Arthur Korteweg, Yael Hochberg, and Stijn Van Niewerburgh, and Jonathan Berk, Ted Berk, John Campbell, Josh Coval, Peter DeMarzo, Mark Egan, Steve Grenadier, Paul Gompers, Daniel Green, Robin Greenwood, Debbie Gregory, Ben Hebert, Victoria Ivashina, Josh Lerner, Hanno Lustig, Chris Malloy, Ludovic Phalippou, Monika Piazzesi, Josh Rauh, Claudia Robles-Garcia, Amit Seru, Andrei Shleifer, Erik Stafford, Ilya Strebulaev, Per Stromberg, Adi Sunderam, Boris Vallee, and Luis Viceira for helpful comments and discussions. We also thank seminar and conference participants at Harvard, the NBER CF SI 2020, the NBER LTAM 2021, the Red Rock Conference, the Virtual Corporate Finance Conference, the University of Washington, the University of Southern California, Stanford, and the Swedish House of Finance for their comments and discussions. Sid Beaumaster, Ruying Gao, Francesca Guiso, Rick Kaser, Elizaveta Savinova, and Yuan Tian provided excellent research assistance. We are also indebted to Maeve McHugh and Michael Smyth at Preqin for their help compiling the data set for our analysis. We have read The Journal of Finance disclosure policy and have no conflicts of interest to disclose. The paper was previously circulated under the title “How Do Private Equity Fees Vary across Public Pensions?” |
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| Abstract: | We study how investment fees vary within private equity 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. |
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