56 Pages Posted: 13 Aug 2018 Last revised: 7 May 2020

There are 2 versions of this paper

Date Written: May 5, 2020

Abstract

Using previously unexplored custodial data, we examine the use of alternative investment vehicles

(AVs) in private equity over four decades. By 2017, AVs reached 40% of all PE commitments.

Average AV performance matches the PE market, but underperforms the main funds of the

partnerships sponsoring AVs. LPs with better past performance invest in AVs with better average

performance, even after conditioning on the GPs’ past records. This result is largely driven by

preferential access of top LPs to top AVs. As a result, returns in PE increasingly depend on the

match between GPs and LPs and both parties’ outside options.