Do Private Equity Managers Have Superior Information on Public Markets?

Abstract

Using cash flows from a large sample of buyout and venture funds, I show that private equity (PE) distributions predict returns in the industries of funds’ specialization. My tests distinguish timing skill from reactions to market conditions and spillover effects of PE activity. Fund managers foresee comparable public firms’ earnings but sell at the industry peaks only if they have performance fees to harvest. These results have implications for manager selection and improve our understanding of PE fund returns and the role of PE in capital markets.