• No results found

Cyclicality and performance of venture capital and buyout funds

N/A
N/A
Protected

Academic year: 2021

Share "Cyclicality and performance of venture capital and buyout funds"

Copied!
19
0
0

Bezig met laden.... (Bekijk nu de volledige tekst)

Hele tekst

(1)

Cyclicality and performance of venture

capital and buyout funds

Bachelor thesis July 2014

Author: Michiel Peters

Student number: 10214070

Supervisor: Ieva Sakalauskaite

Abstract

This paper looks at pro-cyclicality and its influence on performance of venture capital and buyout funds from 1997 to 2011. Using data on 197 European buyout funds, 68 venture capital funds and the Eurostat database, yearly fund investment sizes per country are analysed. We test if the growth of GDP impacts the fund investment size and through this the fund performance. We find that there is pro-cyclicality of private equity with GDP growth. However it is not clear if the pro-cyclicality has an impact on the performance. When two different fund types are analysed separately, our analysis finds that cyclicality is higher in buyout funds. There is also evidence that buyout funds outperform venture capital funds in the selected time period.

(2)

Table of contents

Introduction ... 3

Literature review ... 4

Research on differences between BO and VC funds ... 4

Research on equity funds pro-cyclicality ... 5

Research on fund performance ... 6

Hypothesis ... 7

Methodology and data selection ... 8

Analysis and results ... 9

The impact of GDP growth on fund investment size ... 9

The impact of cyclicality on fund performance ... 11

Cyclicality and fund performances among fund types ... 13

Empirical analysis ... 16

Conclusion ... 16

References ... 18

(3)

Introduction

‘The recent international surge in private equity markets has been accompanied by growing interest in both the academic and practitioner literature in the nature and effects of private equity activity’ (Wright and Wood, 2009). Research was done on different aspects of the field. Some of the Aspects that have been analysed include (i) differences between the fund types buyout and venture capital, (ii) cyclicality of private equity investment and (iii) fund performance. This paper tries to combine these aspects into one research question: Does cyclicality have an impact on the venture capital- and the buyout fund performance? We answer it using data on private equity fund performance in the Euro zone over the period 1997-2011.

To answer the question we will start by explaining why buyout funds and venture funds differ significantly, even though they are often grouped together as private equity. According to Metrick and Yasuda (2010), venture capital and buyout funds differ

substantially in their contracts, and in risk of investment. On top of that Metrick and Yasuda (2010) explain different rationales for venture capital and buyout funds, where buyout focuses on ‘public-to-private investments’ and ‘venture capital emphasizes the information

asymmetry between entrepreneurs and investors’. These differences could mean that they respond to economic conditions differently.

We will then look at the sensitivity of private equity to the development in the

economy and whether it differs among the two types of funds. Research shows that funds are affected by developments in the financial market. Schoar and Kaplan (2005) found evidence of pro-cyclicality of private equity relative to public markets. If this pro-cyclicality exists, the recent financial crisis in Europe should lead to a sharp drop in size and number of private equity investments.

We will then try to find out whether the pro-cyclicality has an effect on fund

performance and whether it differs among the two fund types. The existing literature looks at the relative performance of funds, but not at how it’s effected by cyclicality. Jenkinson and Kaplan (2013) find that both venture capital and buyout funds outperform the market in the 1990’s, and buyout funds continue doing so in the 2000s, whilst venture capital funds start underperforming the market after 2000. On the other hand Phallipou (2009) finds that both venture capital funds and buyout funds underperform the market post 2000. He gets this different answer because he eliminates the NAV from the calculations and he uses different performance weighting.

(4)

From these three formerly researched aspects, a general research question is formed in this paper. Cyclicality impact on the fund performance and how this differs for buyout and venture capital funds led us to the following research question: Does cyclicality have an impact on the venture capital- and the buyout fund performance.

This question will be answered by analysing three sub-questions. First this paper will explore whether there is cyclicality of private equity fund size with the gross domestic product (“GDP”). Secondly this paper will explore whether this cyclicality, which we expect to see based on earlier research findings, has an impact on the overall private equity fund performances. Finally we will look at the results from the former two questions but this time separated out for buyout funds and venture capital funds separately.

This paper is different from the existing papers in that it will combine three previously researched aspects into one research question. Former papers like Kaplan and Schoar (2005) only look at the cyclicality and fund performance, while Metrick and Yasuda (2010) only look at the differences between VC and BO. This paper looks at the impact of the cyclicality on the performance of the two types of funds.

The build up of the paper is as follows. First, a literature review will be presented on the features of private equity and existing equity evidence. Secondly a methodology for our research is made and data is explained. The third part consists of an analysis and results review. Finally, a conclusion will be drawn from what we found in the literature review and our own research.

Literature review

Research on differences between BO and VC funds

There are many forms of private equity funds, including funds specialising in ‘growth capital’, ‘mezzanine debt’ and ‘distressed investments’. But together these account for only a small part of the private equity market. Yasuda and Metrick (2010) say that venture capital (VC) and buyout (BO) together contribute for most of the private equity market. For this reason this paper only looks at these two types. The structure and differences between the two private equity funds need to be defined to be able to answer the 3 questions in the paper as the research question analyses one against the other.

Although both funds tend to be structured as limited partnerships with a fixed life of 10 years, there are significant differences between VC and BO funds. The two most visible differences are the fact that BO funds invest in mature companies, while VC funds invest in

(5)

fast growing start-up companies. Another clear difference is that VC has ‘less collateral, high growth, high risk and high profitability compared to BO fund’s’ (Yasuda and Metrick (2010)). Also, the valuing of projects is different for both types and therefore the end value of projects also differs. Sahlmann (1990) explains the difference in valuing as he says that ‘the value of VC funds lies not only in money but also in ancillary services, such as selecting good firms, mentoring entrepreneurs, hiring executives and formulating strategies’. Valuing like this causes that VC funds have unique skills in valuating firms according to Hellmann and Puri (2002). The experience and better skills with valuing VC projects should have a positive impact on the fund performance as VC funds are better at monitoring their investments than BO funds tend to be.

The final difference we address here is that in venture capital funds the investors have more control over their investments. VC funds have minority stakes (Kaplan and Strömberg (2003)), and staged financing (Cornelli and Yosha (2003)). Together these cause for more control of investors over their invested entities. The lesser control that buyout funds have comes from the fact that buyout funds involve ‘one-off’ investments which ‘result in majority control’ (Ljunqvist, Richardson, Wolfenzon (2008). The fact that investors have more control in VC than in BO could make it more attractive to invest in VC in times of crisis.

The difference in projects, risk, valuation and degree of control over their investments clearly show that venture capital and buyout are not the same. These differences could lead to different sensitivity to GDP growth or performance.

Research on private equity pro-cyclicality

Cyclicality of private equity with the GDP means that the growth rate of private equity investment tracks GDP growth. There will be pro-cyclicality if the investment size growth increases as the GDP growth increases. If the growth rate in investment moves contrary to the GDP growth, there will be counter-cyclicality. When investment size doesn’t track GDP growth at all, it is a-cyclicality.

From the results of earlier studies we can expect investments to be pro-cyclical with GDP. Meyer (2006) found that private equity investments and economic growth are

correlated. According to Meyer (2006) an increase of buyout investment is related to an increase of GDP. In later studies this correlation is also found for venture capital funds by Meyer (2006). Furthermore, Schertler (2003) found that the level of investments has a positive correlation with the number of employees and the degree of rigidity in the labour market, which are an alternative indicator for economic development. According to Gompers

(6)

and Lerner (1998) economic growth provides more opportunities to investors. Kaplan and Schoar (2005) found there to be pro-cyclicality of private equity with financial markets rather than GDP.

Research has also been done on the sensitivity of VC and BO with GDP. Robinson and Sensoy (2011) found strong differences in cyclicality between buyout fund’s and venture capital funds. Venture capital cash flows and performance exhibit substantially more

cyclicality then buyout funds. This difference of impact can be explained by some structural factors given by Kelly (2010). He names five structural factors that are important for how much the investment size is impacted by GDP growth. The five factors are entrepreneurial environment, tax regimes, institutional environment, labour market and capital market. BO equity is not materially influenced by the entrepreneurial factor as it is less innovation driven. On the other hand VC is very innovation driven, and innovation is negatively affected by the financial crises (OECD). So the VC funds are more affected by such crises than BO funds. Labour markets have a big influence on VC, as labour market rigidity is associated with less venture activity (Meyer (2006)). BO funds are also affected by labour market rigidity, but not as much according to the OECD. The three other structural factors all have positive or

negative impact for both BO and VC. From all this we can see that economic development has more impact on VC and therefore we would expect a bigger cyclical effect on venture capital, like Robinson and Sensoy (2011) found.

Research on fund performance

Many papers have conducted research on the performance of private equity, or buyout and venture capital separately. Throughout these papers, different conclusions have been drawn, and therefore no clear pattern for private equity performance emerges. Jenkinson and Kaplan (2013) find that both venture capital and buyout funds outperformed the market in the 1990’s, and buyout funds continue doing so in the 2000s, whilst venture capital funds started

underperforming the market after 2000. On the other hand, Phallipou (2009) finds that both venture capital funds and buyout funds underperform the market. He gets this different answer because he eliminates the NAV from his calculations and he uses a different performance weighting.

Some research has also been conducted that combines the aspects of fund cyclicality and performance. Research has been conducted on the performance during boom and bust periods. Robinson and Sensoy (2011) found that the absolute performance of buyout funds that invested in boom fundraising years has been signicantly worse than that of funds that

(7)

invested in bust periods. Also Robinson and Sensoy (2011) find that cyclicality has a positive impact on the relative fund performance. This means that a high degree of cyclicality

positively affects the fund performance.Kaplan and Stromberg (2009) didn’t look at the relative performance, but at the absolute performance and found a different result to Robinson and Sensoy. They found that a high degree of cyclicality with GDP actually has a negative impact on the fund performance. This means that if GDP goes up, investment fund size goes up, but as a result of this the fund performance goes down. However they do not look at VC and BO funds.

Hypothesis

The literature reviewed above helps us form a hypothesis regarding the research question. The first sub-question we research is whether the GDP growth has an impact on the fund investment size. From the existing research on cyclicality, we can expect that fund investment size moves together with GDP. Both Meyer (2006) and Kaplan and Schoar (2005) have found that there is cyclicality of private equity with both the economic state and the financial market.

The second sub-question we research is if this cyclicality found in question one has an impact on the performance of the funds. The existing empirical evidence does not give a clear answer. But this paper uses the internal rate of return (IRR) as the fund performance measure, which is a absolute performance measure. Consequently, we follow Kaplan and Schoar’s methodology and consequently, we should expect their results, which find that a high degree of cyclicality predicts a low IRR.

The final sub-question we try to answer is whether the results found in sub-questions one and two differ for venture capital funds and buyout funds. And if they do differ, which type of fund is impacted more by GDP growth.

From the literature review we know the main differences between the two classes of funds. Those were difference in projects, risk, valuation and control. On the difference of performance between the types, Robinson and Sensoy (2011) found that VC funds

significantly underperform BO funds. So we also expect the VC funds to underperform the buyout funds.

As Robinson and Sensoy (2011) found there to be more cyclicality for VC fund then for BO funds. We expect there to be more pro-cyclicality for VC funds then for BO funds. Kelly (2010) makes this expectation stronger with his research on how much each of the five structural factors impacts investment size. Which also says that VC are more sensitive to GDP

(8)

growth then BO. As VC is expected to be more sensitive and should therefore have a higher pro-cyclicality, we also expect from Kaplan and Schoar’s (2005) earlier findings that VC performance is impacted more than BO performance.

Methodology and data selection

This paper uses data from two different databases. The first database is assembled by Preqin, the biggest commercial database for private equity. Other research papers such as that of Sensoy and Robertson (2011) also made use of this database. Preqin contains performance data for over 70% of all private equity funds raised worldwide. From this database we will collect data of 197 buyout funds with fund manager locations in Germany, France, Spain, Sweden, Denmark and the UK. We also collect data for 68 venture capital funds from the same manager locations. In this paper we assume that funds in different countries mainly invest in local economies.

The second database we use is Eurostat. Eurostat, part of the European commission, provides statistical information to institutions of the European union. Under the ‘European statistical law’ the national data providers must assess the quality of the data they transmit to Eurostat (eurostat). All the data in the database is therefore regularly assessed and validated, which makes it a reliable source to use.

To answer the first question on fund cyclicality , we regress fund investment size on GDP growth for each country from 1997 to 2011.

The dependent variable is the growth of the yearly fund investment size on the former year calculated from the Eurostat database. We could not use Preqin for this data as we didn’t have acces to a more premium account.

The independent variable, the GDP is defined as the value of all goods and services produced less the value of goods and services used in their creation and with that information measures the economic activity (eurostat). For that reason GDP is a good measure of each year’s economic state. The annual growth rate is used as it shows economic development over time. The real GDP growth rate is used as the nominal GDP growth rate includes increase in output due to price changes which doesn’t produce the real numbers of how much the economy has grown. All the data found in this dataset comes from Eurostat. The time period for the dataset is 1997-2011. The period from 1997-2011 was chosen as it should be big enough to find cyclicality; this period straddles two boom and bust cycles. It captures the dotcom bubble and the financial crisis, plus the growth periods in between.

(9)

To answer the second research question on whether the cyclicality found in question one is related to the fund performance, coefficients from requiring investments on GDP are related to our measure of fund internal return. Data on internal rate of returns (IRR) over the period 1997-2011 are taken from Preqin for the countries France, Germany, Denmark,

Sweden, Spain and the UK. These countries were chosen as they have the most private equity funds throughout this period, and the most performance information in Preqin. The internal rate of return is used as performance measure as it tells the profitability of the projects. The average IRR per country in the dataset is a calculation of all known private equity IRR per year added together and then divided by the number of observations.

For answering the final question, on the difference between venture capital and buyout fund cyclicality and performance, again data from Eurostat and Preqin are taken. Buyout investments and venture capital investment were found on Eurostat for Germany, France and the UK separately. This information was again found from two different tables from Eurostat. One database contained information on fund investment size from 1989-2006, and the other database contained information from 2007-2013. Both databases contained buyout fund information, but had different types of venture capital fund information. In the first database venture capital was defined as ‘early stage investments’. This was used as the other option was ‘Expansion and replacement investments’ which is getting closer to buyout investments. In the second table, venture capital was defined as ‘later stage venture capital’. We expect these two sets of data to be compatible as the numbers do complement each other. Only for the data of the UK the gap between the 2006-2007 investment size is a strange number. This might influence our results, but for France and Germany the numbers are fairly similar. These separate fund investment sizes are again calculated to growth on the former year and

regressed on the same GDP growth rate per country used in the first regression. Again the average IRR per country per fund was calculated from the performance analysis section in Preqin.

Analysis and results

The impact of GDP growth on fund investment size

The first question to be answered in this paper was if GDP growth has an impact on the fund investment size over time. If GDP growth does have impact on fund investment size, then it could be said that there is cyclicality of private equity with economic growth. To answer the

(10)

question, a linear regression for each country was done. The regression had the following form:

Y

t

=α+β GDP

t

+ ε

t

In the above formula Yt is the yearly fund investment size growth (𝐼𝐼𝐼𝐼𝐼𝐼(𝑡𝑡) –𝐼𝐼𝐼𝐼𝐼𝐼(𝑡𝑡−1)𝑖𝑖𝐼𝐼𝐼𝐼(𝑡𝑡−1) ). α is a

constant and β is the beta of GDP growth. This number will tell how much impact GDP growth has on the fund investment size. We did a time series plot to look at how the GDP growth and fund investment size compared.

Graph 1: Time-series plot

The graph is in the following order for countries Denmark, France, Germany, Sweden, United Kingdom and Spain. In the plot it can be seen that most graphs have a huge dip in GDP growth during the financial crisis of 2007. But for the rest the Investment number are moving along with the GDP growth. In Germany and the UK we find some extreme peaks, which are because of extreme numbers in the database.

Doing the regression of country fund investment size growth on GDP growth for Germany, France, Sweden, Spain, Denmark and the UK we found the following results

-10 0 10 20 -10 0 10 20 1995 2000 2005 2010 1995 2000 2005 2010 1995 2000 2005 2010 1 2 3 4 5 6 Inv GDPgrowth var2 Graphs by var1 10

(11)

Table 1: Regression per country

Sweden France United Kingdom Denmark Germany Spain Β 0,2216168 0,1531208 0,1978917 0,1437397 0,6847095 0,0945226 Α -0,144563 -0,061657 0,7466523 0,3975189 1,663657 0,0350556

-t-score 2.06 3.34 1.40 1.75 1.18 2.46

From the table we can see that all the beta’s are positive and four out of six are significant. The two countries with a t-score below 1.65 are not significant. This means that there is evidence that in these two countries there is a-cyclicality. Both the insignificant results for the United Kingdom and Germany could be explained by extreme numbers in their dataset as we saw in their time series plots. The German dataset contains two extreme investment growth rates in the year’s 2004 and 2007. While the UK dataset has an extremely large growth rate number in 2006. These extreme data might have influenced the results, but it does not mean that the results are not true.

The rest of the beta’s are all positive and significant. From this result it could be said that in these countries there is pro-cyclicality between fund investment size and GDP growth. The coefficients are very small, laying between 0,0945 in Spain and 0,2216 in Sweden. This means that the fund size change over time is not largely explained by the GDP growth. Other factors not named in this paper are important in explaining fund investment size growth too.

The results from this research are in line with the expectations we drew from the literature review. Meyer found that an economic growth of 0,2% went parallel with an increase of buyout investment equivalent of 0,1% of GDP. In our dataset we could see the same effect between economic growth and private equity investment. In the UK during the recession in 2008, a GDP growth increase of 0.2% went along with a 0,04% increase with the total number invested in funds in Sweden. And a increase of GDP growth of 0,2% in France went along with an increase of 0,03% in total number of investments.

The impact of cyclicality on fund performance

The second question in the paper was to see if the impact of GDP on the fund size found in the first question is related to the performance of the funds. As performance measure we had taken the internal rate of return of all the funds over the test period. For every country the average fund performance over the period from 1997-2011 can be seen in the following table.

(12)

Table 2: Dataset cross section IRR-Beta

Country Average IRR Beta

UK 14,4 0,197892 Spain 5,7 0,065194 Germany 16,4 0,621841 France 8,2 0,153121 Denmark 18,2 0,14374 Sweden 21,1 0,221617

In the table, we can see that all the countries had a positive fund performance throughout this period. But the average IRR per country differs a lot. The average IRR for Spain and France were much lower than the average IRR for Sweden and Norway. From this dataset it seems that the more you look in the northern part of Europe, the higher the internal rate of return for the funds. There could be many explanations for this. Some examples of explanations are regulations, education or economic state.

To look at how cyclicality and IRR are related, we plot beta’s and average IRR for the sample countries.

Graph 2: Scatter plot Beta-IRR

5 10 15 20 IR R 0 .2 .4 .6 .8 Beta 12

(13)

The scatter plot shows that a higher beta is related to a higher IRR. Spain has a beta of 0,065 and an IRR of 5,7% while Sweden has a higher beta of 0,221 and also a higher IRR of 21,1%.

We also wanted to do a regression of IRR on all the significant Beta’s found in question one. In this case we found a significant coefficient and therefore it was sufficient. But doing the regression on all six countries from question one didn’t create a significant result.

From the literature review we expected that a pro-cyclicality, as we found in question 1, would go along with a decrease in fund performance. Kaplan and Stromberg (2009) had found that a high degree of cyclicality with GDP actually has a negative impact on the fund performance. This is contradictory to our results, where a high degree of cyclicality, high GDP, went along with a high IRR. As our model is not significant and was based on a very small sample base, no final conclusion can be made.

Cyclicality and fund performance differences among fund types

After results in questions one and two for the total private equity sector, our third question data looks at the differences between venture capital and buyout funds. For this analysis we used three countries: Germany, France and the UK. These were selected as they all had

sufficient buyout and venture capital funding in the period 1997-2011. For these countries, we regressed their GDP growth on buyout fund investment size and venture capital fund

investment size separately. The regression done uses similar dependent variables and independent variables as in question one and takes the same form. The results are shown in the table below.

Table 3: Regression VC and BO separatly

United Kingdom BO United Kingdom VC Germany BO Germany VC France BO France VC

β 3,797676 0,2655966 0,2118257 0,126166 0,3401292 0,2035596

α 1,408194 0,1087167 0,167067 0,0460604 2,263644 0,1339226

-t-score 1.03 1.89 4.17 3.26 0.48 1.87

The results are similar to those in the first research question, confirming that there is pro-cyclicality between GDP growth and fund investment size. The beta’s in this case are bigger, with the impact ranging between 12% and 37% instead of between 9% and 22% found

(14)

in question one. Again we have two results that are not significant with a T-score below 1.65 suggesting that the funds are a-cyclical. Again these two dataset contained 1 or 2 extreme investment size growth number, which affected the result. In the UK data the 1997 data was so extreme that the beta was 3,797. When we drop the extreme numbers from the French BO and UK BO datasets, and then do a regression, the French result becomes significant, but the UK result still is not. What is interesting to see after having two significant buyout results and 3 significant venture capital results, is the fact that BO funds seem to be more sensitive to GDP growth rate then VC funds. BO fund’s beta’s average 0,2632, whilst venture capital fund’s beta’s average 0,1984. This means that VC funds have higher cyclicality with GDP. This is not in accordance to our expectations, as Robinson and Sensoy (2011) said that BO should be more sensitive then VC.

After knowing the impact of GDP growth on fund investment size again we wanted to know if this had impact on the performance. Average IRR per country and fund were

calculated from Preqin and compared to the Beta’s found in the former section.

Table 4: cross-section dataset IRR-Beta

This table shows that the average IRR over time is much higher for buyout funds than for venture capital funds. This is consistent with the existing literature, which provide evidence that venture capital funds underperform buyout funds. Average IRR and Beta’s are presented in graph 3.

Country Average IRR beta

France buyout 17,3 0,340129

France venture capital 5,1 0,20356

UK buyout 14,6 0,368126

UK venture capital 2,5 0,265597 German venture capital 9,3 0,126166

Germand buyout 19,5 0,211826

(15)

Graph 3: Scatter plot IRR-Beta

From the scatter plot it can be seen that, viewed on a per country basis the lower beta’s found for VC are related to a lower IRR. A beta of 0.12 for German venture capital investment fund size was related to an average IRR of 9.31, whilst a beta of 0,21 for German buyout

investments was related to an IRR of 19.5. This is consistent with our previous findings. Looking at per fund type, we get different results than we found in our previous findings. Per fund it can be seen that as beta goes up, this is related to the fact that the IRR goes down. This is consistent with what Robinson and Sensoy (2011) found in their research. In one research we find two different results. Looking on a per country basis the results are consistent to our earlier findings. And looking at a per fund basis the results are consistent with what we expected from earlier literature findings.

We did a cross sectional regression, again of beta’s found in the first part on IRR just like in question two. Unfortunately again we couldn’t find a significant outcome. Again we can’t say for sure that the degree of fund investment size sensitivity to GDP is related to the performance. The regression is not feasible because of a lack of observations. Three countries with both only two fund types is too limited a sample group for the whole European continent.

Comparing our results with the literature review, the fact that venture capital funds underperform buyout funds is in line with the expectations from what Robinson and Sensoy (2011) found. But the result that buyout funds have higher beta’s, and thus more

pro-cyclicality, is not in line with the results Robinson and Sensoy (2011) found. Also the result of a high beta is equal to a high IRR per country is not in line with what we found in the

UK VC UK BO France BO France VC Germany VC Germany BO 0 5 10 15 20 IR R .1 .2 .3 .4 Beta 15

(16)

literature review. But we also find that looking per fund instead of per country, then the results are consistent with Robinson en Sensoy. The expectations that VC funds performance is impacted more is also not in line with the literature review. But that is because BO is more sensitive to GDP growth, while we expected VC to be more sensitive to GDP.

Empirical analyses

From the two different researches we move to conclusions. For country with fund type separated and country with total fund, we find the same results. Both show positive beta’s, which result in a pro-cyclicality of investment fund size during 1997-2011 with GDP growth rate. Also, the beta’s between 9% and 26% tell us that GDP growth has a small impact on the size of fund investments. From the 12 regression over both researches, 8 were found

significant. And of those four found to be insignificant, all could be explained by extreme numbers in the dataset. From this it is possible to say that GDP growth does have an impact on the fund investment size. These results are the same as those we expected to get as Meyer (2006) found the same impact of GDP on fund investments and Kaplan and Schoar found the same effect between financial markets and private equity.

The second research question, on whether this has impact on the IRR, can’t be proven through our analysis. In the scatter plots for both our analyses, a clear pattern emerges. They show that that a low beta relates to a low IRR and a high beta’s relates to a high internal rate of return. So high cyclicality has a positive impact on the fund performance. This is not what Kaplan and Stromberg found; they found the opposite. However as the models explaining our data are not significant it can’t be said if the cyclicality has an impact on the fund

performance.

Conclusion

At the start of this paper, we looked at three aspects of private equity that had been researched before. The three aspects were combined into one research question to be answered

throughout the paper: Does cyclicality have an impact on the venture capital and buyout fund performance?

To answer this question, three steps had to be taken. The first was measuring the pro-cyclicality of private equity with the economy. From the literature review it was expected that there would be a pro-cyclicality of the private equity with the GDP growth rate. From our

(17)

results we found that there was between 9% and 22% impact of GDP growth on fund investment size. This appears to support a conclusion of pro-cyclicality.

Then, we looked at whether this cyclicality impacted the fund performance. From the literature review it was also expected that this pro-cyclicality would have a negative impact on the fund performance. Our research did not support this conclusion, as the insignificant data set applied found that high beta’s were positively related to high IRR.

And then the final research question was how the impact of pro-cyclicality on fund performance differs between buyout and venture capital funds. Based on literature review of earlier research, it was expected that there would be more cyclicality for venture capital funds than for buyout funds. In our research we found this to be the other way around, as the

average beta for venture capital funds was 0,19 and the average beta for buyout funds was 0,26. On fund performance it was expected that buyout funds would outperform venture capital funds. This was in line with our research, as we found that the average IRR for buyout funds were higher than for venture capital.

We can reach the following conclusions, as we clearly found there to be pro-cyclicality of fund investment size with GDP growth. But we could not find a significant model that proved that this cyclicality was related to fund performance. What we could see in the scatter plot for both researches was that there was a pattern that showed that high degree of cyclicality and that this was positively related to the fund performance, but we cannot accept this as our findings were too insignificant. What we did find was that buyout funds are impacted more than venture capital funds. But again we cannot say for sure what this does to the fund performance of the funds.

(18)

References

Andrew Metrick and Ayako Yasuda (2010) Venture Capital and Other Private Equity: A

Survey. NBER Working Paper No. 16652

Cornelli, Francesca, and Oved Yosha, (2003). Stage financing and the role of convertible

securities, Review of Economic Studies 70, 1-32.

David T. Robinson and Berk A. Sensoy (2011). Cyclicality, Performance Measurement, and

Cash Flow Liquidity in Private Equity. NBER Working Paper No. 17428

Eurostat. (2014). Venture capital investment by detailed stage of development (from 2007). Available: http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=htec_vci_ stage2&lang=en. Last accessed 28-06-2013.

Eurostat. (2014). Venture capital investment by aggregated stage of development (from

1986-2006). Available: http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=htec_vci_

stage1&lang=en. Last accessed 27-06-2013 Eurostat. (2013). Real GDP growth rate. Available:

http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language= en&pcode=tec00115. Last accessed 12-06-2013.

Harris, Jenkinson and Kaplan(2013). Private Equity Performance: What Do We Know? Journal of Finance

Hellmann, Thomas J., and Manju Puri, (2002). Venture capital and the professionalization of

start-up firms: Empirical evidence, Journal of Finance 57, 169-197.

Kaplan, Steven N. and Antoinette Schoar, (2005). Private Equity Performance: Returns,

Persistence, and Capital Flows, Journal of Finance 60:1791-1823.

Kaplan, Steven N. and Per Stromberg, (2009). Leveraged Buyouts and Private Equity. Journal of Economic Perspectives 23:121-46.

Kelly R. (2010). Drivers of Drivers of Private Equity Investment Activity Investment Activity

Investment Activity: Are buyout and venture investors really so different? EIF

Research & Market Analysis, Working Paper 2010/006

Ljungqvist, Alexander, and Matthew Richardson, (2003). The cash flow, return and risk

characteristics of private equity, NBER Working Paper no. 9454.

Meyer, T. (2006) ‘Private equity: spice for European economies’, Journal of Financial Transformation 18, 61-9.

Phalippou, Ludovic and Oliver Gottschalg, (2009). The Performance of Private Equity

(19)

Funds, Review of Financial Studies 22:1747-1776.

Preqin. (2014). performance analyst. Available:

https://www.preqin.com/item/private-equity-performance-analyst/1/11. Last accessed 25-06-2014.

Sahlman, William A., (1990). The structure and governance of venture-capital organizations, Journal of Financial Economics 27, 473-521.

Schertler, A. (2003). ‘Driving forces of venture capital investments in Europe: a dynamic

panel data analysis’ European Integration, Financial Systems and Corporate Performance (EFIC) Working Paper No 03-27, United Nations University.

Referenties

GERELATEERDE DOCUMENTEN

It can therefore be expected that the relationship between venture capital influence and underpricing is stronger for countries in a high quality institutional environment, where

It is impossible to find a combination of management practices that optimizes IE, WUE, and green and blue WF simultaneously, but our results showed that: (1) de ficit irrigation

This paper describes the study protocol of the DUtch PARkinson Cohort (DUPARC), a single-center, prospective, longitudinal, observational, cohort study at the University

Further, although images perceived with the eyes and off the screen can nonetheless evoke emotion; these emotions are aroused by a two dimensional beauty representation – when

The presence of multiple states in a local measurement (azimuthal velocity) and at the same time a global measurement (torque) provides convincing evidence that the system can indeed

Vallen producenten van IoT-apparaten onder de beveiligingsverplichting van de Algemene Verordening Gegevensbescherming en zijn zij daarom verplicht om de software van door hen

To enhance ANS credibility in the route selection process, we offer three route alternatives to the driver, along with information to facilitate comparison of these choices

The impact of venture capital reputation on the long run performance of Asian venture- backed initial public offerings.... Venture-backed initial public offerings in China, Japan