“There is No Carried Interest Loophole” – Best of PERC Oxford

Aug 6, 2025 – 11:00AM (ET)

(Presentation)

Abstract: Carried interest is a special, or disproportionate-to-ownership, allocation of profits to the general partner of a private equity or hedge fund partnership. Some commentators deride carried interest as a “loophole” that allows high-income taxpayers to reduce their taxes by improperly obtaining preferential, instead of ordinary, tax rates. In this paper, I provide three analyses that suggest these common concerns are misplaced. First, and contrary to concerns of impropriety, I show that the current tax treatment of carried interest is consistent with the basic principles of the tax system, including principles of equity and fairness. Relatedly, the taxation of carried interest in partnerships is identical to similar arrangements in corporations. Second, and contrary to concerns of reduced tax payments, I demonstrate that the current taxation of carried interest generally results in the U.S. government receiving more revenue than it would in absence of this special allocation. Third, I evaluate proposals to tax carried interest as ordinary income. Taxing carried interest as ordinary income may increase the tax rate on carried interest, but would also generate new deductions for the payment of carried interest that may partially or fully offset revenue raised by any tax rate increase, a fact often overlooked by commentators. In sum, the current taxation of carried interest is in line with the principles of the tax code and generates minimal, if any, revenue losses to the U.S. government and potentially increases revenue. Changes to the current tax treatment may induce economic distortions and reduce equity in the tax code. As such, commentators and politicians should refocus on more pressing and significant issues in the tax code.

Authors: Steven Utke, University of Connecticut (presenting)

“Venturing into Racial Diversity on Startup Boards” – Best of PERC Oxford

July 16, 2025 – 11:00AM (ET)

(Presentation)

Abstract: What drives racial diversity on startup boards? We provide the first evidence on this question by exploiting the demand shock from the 2020 George Floyd (GF) protests. Using facial recognition technology to measure race, we find that Black director appointments nearly doubled (from 1.6% to 3.1%) post-GF. Access to diverse candidates shaped startups’ ability to respond: appointments increased most in areas with more Black professionals and in executive and independent director roles, while venture capital firms showed no increase in Black appointees. Capital market incentives drove these responses: startups planning to raise capital in public or private markets were three times more likely to add Black directors. Following the DEI backlash, we find divergent career trajectories: Black directors appointed to public boards during 2020-2021 were significantly less likely to secure new board seats compared to those appointed before George Floyd, while startup directors showed no such negative pattern. This divergence reflects our finding that public firms rapidly increased first-time Black director appointments under intense scrutiny, whereas startups maintained more consistent appointment patterns throughout this period. Despite the sudden increase in demand, Black directors had comparable qualifications to other directors, and startups adding Black directors showed no change in performance. Our findings reveal that concentrated ownership, combined with institutional constraints, can entrench traditional networks that limit board diversity.

Authors: Johan Cassel, Vanderbilt University (presenting); James P. Weston, Rice University; Emmanuel Yimfor, Columbia University

“Valuation Discipline in Private Credit” – Best of PERC Oxford

June 4, 2025 – 11:00AM (ET)

(Presentation)

Abstract: Private credit managers have the discretion and incentives to overstate values of their loan portfolios. To alleviate agency concerns that arise in pricing opacity, managers often delegate loan pricing to third-party valuation intermediaries. This paper studies how such intermediation affects valuation practices in private credit markets. We pair proprietary data with SEC filings to compare not only across managers, but also within their internal vs. external information environments. Third party pricing appears to be a widely used and effective tool that disciplines valuation practices. Creditors of the private credit managers themselves play a crucial role in enforcing valuation intermediation as a governance mechanism. However, the quality of their intermediation depends on informational inputs. During times of uncertainty, lead lenders receive better appraisals through incorporation of soft information from renegotiations. Overall, information asymmetry in lending relationships driven by the bespoke nature of direct lending appears to contribute to dispersion in reported marks, beyond often cited agency reasons.

Authors: Young Soo Jang, Pennsylvania State University, Smeal College of Business (Presenting);
Ginha Kim, University of Chicago Booth School of Business

Do Public Equities Span Private Equity Returns?

May 7, 2025 – 11:00AM (ET)

(Presentation)

Abstract: We characterize the factors common between public and private equity (PE) returns as well as the factors specific to private and public returns, respectively. Using a comprehensive dataset of PE funds and recent advances in PE fund returns nowcasting at high frequency and factor extraction in a grouped data setting, we show that, albeit over 90% of PE returns may be explained by factors common with the matched public equities, the remaining variation exhibits robust factors that are distinct to PE. These PE-specific factors significantly increase a portfolio’s Sharpe ratio through higher expected return and better diversification. The optimal allocation to PE is positive at the 95% confidence level–at 11 to 24% of risky portfolio, depending on the public equity portfolio characteristics-even after accounting for sampling error and imposing the no-shorting constraint within the PE portfolio. Additionally, we show that the two most commonly used datasets on PE fund returns have virtually identical common factors with public equities, but over half of their PE-specific variation is distinct from one another. Our approach ensures that the alpha we find cannot be mimicked by a tailored-enough portfolio of listed equities.

Authors: Eric Ghysels, UNC Kenan-Flagler Business School; Oleg Gredil, Tulane University, Freeman School of Business (presenting); Mirco Rubin, EDHEC Business School

Risk-Adjusted Performance of Private Funds: What Do We Know? – New IPC White Paper

April 2, 2025 – 11:00AM (ET)

(Presentation)

Be among the first to hear findings from IPC’s newly released white paper, “Risk-Adjusted Performance of Private Funds: What Do We Know?”. In this session, Prof. Christian Lundblad from UNC Kenan-Flagler Business School will present what we believe represents the most exhaustive analysis of private fund returns to date.

Authors: Gregory Brown, UNC Kenan-Flagler Business School; Christian Lundblad, UNC Kenan-Flagler Business School (presenting); William Volckmann, Institute for Private Capital

New Research on Current Issues in Private Markets: Previews from IPC’s Spring Research Symposium

March 5, 2025 – 11:00AM (ET)

Join us virtually for presentation and discussion around two of the most highly anticipated papers from our upcoming Spring Research Symposium. Hear directly from the authors on these pressing themes in Private Markets.

Paper #1: Selling to Yourself: Continuation Vehicles in Private Equity

WIP – Contact us to request presentation or paper

Abstract: This paper presents the first study of an emerging market trend: managers selling assets from one of their funds into a new continuation vehicle (CV) they manage, with existing limited partners being able to cash out or continue to hold. We comment on agency theories by analyzing data on continuation funds and transferred assets. CVs tend to be used by more successful funds and general partners and appear to contain higher quality assets, potentially as a response to asymmetric information challenges. Flexibility appears to be a key driver of limited partner investment decisions, with fund of funds being more likely to participate in CVs.

Authors: Rustam Abuzov, Darden Business School (presenting); Will Gornall, Saunder School of Business, University of BC; Ilya Strebulaev, Stanford University & NBER

Paper #2: Democratizing Private Markets: Private Equity Performance of Individual Investors

WIP – Contact us to request presentation or paper

Abstract: Using new data on wealthy U.S. households, we provide the first systematic study of private equity investments by individual investors. Contrary to concerns about adverse selection, we find that private equity investments by individual investors perform similarly to those of institutions and outperform public markets. We identify three innovations that enable individuals to invest in private equity: the proliferation of funds with low minimum commitments, pooling capital via advisors, and leveraging advisors’ networks to access fund managers. Our findings demonstrate how advisors and access to private equity funds can enhance household portfolio returns

Authors: Cynthia Balloch, London School of Economics; Federico Mainardi, Booth School of Business; Simon Oh, Columbia Business School; Petra Vokata, Fisher College of Business, Ohio State University and CEPR (presenting)

Retail Vehicles for Private Equity

February 5, 2025 – 11:00AM (ET)

WIP – Contact us to request presentation or paper

In this workshop, Prof. Mike Ewens (Columbia Business School), will present preliminary research on the recent rapid growth in private funds including a description of fund terms and characteristics. The analysis also considers potential differences from traditional closed-end draw-down funds in underlying portfolios driven by differences in fund structure and incentives.

What Fees Do Investors Really Pay for Private Capital Funds?

January 8, 2025 – 11:00AM (ET)

(Presentation) – WIP – Contact us to request paper

Abstract:  Using proprietary client-specific fee data from private equity funds, we investigate the fee schedules of limited partners (LPs) when investing in private equity. Our analysis finds that management fees are almost half the level perceived by the market, and that economies-of-scale, though significant, fail to explain the majority of variance in management fee levels. Third-party expenses e.g. interest expenses, can reach significant levels. The accrual and distribution cycle of US-waterfall funds is also explored. 

Authors: Oliver Bell, Leeds University Business School; Iain Clacher, Leeds University Business School; Tim Jenkinson, University of Oxford, Saïd Business School (presenting); Christopher Sier, ClearGlass Analytics

Investor Expertise and Private Investment Selection (PERC Highlights)

Dec 4, 2024 – 12:00PM (ET)

(Presentation)

Abstract: Despite the remarkable growth of individual investors in private markets, little is known about their investment patterns. We test the impact of investor expertise on venture capital fund selection by conducting an experiment with limited partners. By fixing access to investment opportunities, we isolate fund selection behavior. We compare the selections of professional and individual investors. Both groups aim to select high performing funds but differ in their beliefs about which fund managers (GPs) deliver high returns. Professionals prefer GPs with strong past returns, while individuals favor GPs with elite educational backgrounds, but place less emphasis on past performance. Our estimates suggest that fund selection alone could explain 20% of the difference in returns between professionals and individuals.

Authors: Shane Miller, University of Michigan (presenting); Emmanuel Yimfor, Columbia University; Ye Zhang, Stockholm School of Economics

Leveraged Payouts: How Using New Debt to Pay Returns in Private Equity Affects Firms, Employees, Creditors, and Investors (PERC Highlights)

Nov 6, 2024 – 11:00AM (ET)

(Presentation)

Abstract: PE managers often generate financial returns without selling the portfolio company by leveraging company assets or cash flows. This paper studies one such “leveraged payout” transaction, the dividend recapitalization (DR). While DRs increase deal returns, they reduce wages, pre-existing loan prices, and fund returns (possibly reflecting moral hazard via new fundraising), pointing to negative implications for employees, creditors, and investors.

Authors: Abhishek Bhardwaj, Tulane University; Abhinav Gupta, UNC Kenan-Flagler Business School; Sabrina T. Howell, NYU Stern & NBER (presenting)

High-Net-Worth Individuals, Private Capital and Inequality

Oct 2, 2024 – 11:00AM (ET)

WIP – Contact us to request presentation or paper

Abstract: This paper studies the growing importance of high-net-worth individuals (HNWI) in private capital markets, especially venture investments, and their role in explaining increasing inequality. Using novel data sources, we find that changes in U.S. business laws, which make it easier for small businesses to raise capital, played a major role in explaining the increasing participation of HNWI in private capital markets and in turn, higher wealth inequality in the U.S.

Authors: Ararat Gocmen, University College London Clara Martínez-Toledano, Imperial College London & CEPR; Vrinda Mittal, UNC Kenan-Flagler Business School (presenting)

The Trillion Dollar Bonus of Private Capital Fund Managers

Sept 4, 2024 – 11:00AM (ET)

(Presentation) 

Abstract: Carry is a performance-related payment made to private capital fund managers (general partners of limited partnerships). Using information on fund performance and key terms of fee structures, we can estimate whether a fund owes or paid some carry (is “in-the-carry”) and the total amount (paid and due). We find that as much as 70% of invested capital is in the carry, and funds focusing on Leveraged Buy-Outs and Secondaries are nearly all in the carry (83%, 91%). On aggregate, carry exceeds one trillion dollars (over the last 25 years). Three quarter of the overall carry goes to firms based in the U.S., but less than one third of the money invested comes from the U.S. These findings may contribute to global debates on the taxation of Carry and on new drivers of wealth inequalities.

Authors: Ludovic Phalippou, University of Oxford, Saïd Business School (presenting)

Private Debt vs. Bank Debt

August 7, 2024 – 11:00AM (ET)

Private Debt vs. Bank Debt in Corporate Borrowing – (Presentation)

Abstract: This paper examines the interaction between private debt and bank debt in corporate borrowing. Combining administrative bank loan-level data with non-bank private debt deals, we document that about half of U.S. private debt borrowers also rely on bank loans. These dual borrowers are typically larger, riskier firms with fewer tangible assets, lower interest coverage ratios, and higher leverage. When co-financing the same borrowers, private debt lenders typically extend larger but relatively junior term loans with longer maturities and higher spreads, while banks provide more senior loans, typically in the form of credit lines. Once a bank borrower accesses private debt, it often obtains additional bank credit but at significantly higher spreads. During times of market-wide distress, a borrower’s reliance on private debt is associated with increased drawdowns and higher default risk of bank credit lines. Our findings suggest that while private debt substitutes for relatively riskier bank term loans, it complements bank credit lines. However, this complementarity may also impose costly externalities on bank loans by exacerbating their drawdown risk.

Authors: Sharjil Haque, Board of Governors of the Federal Reserve System (presenting); Simon Mayer, Carnegie Mellon University; Irina Stefanescu, Board of Governors of the Federal Reserve System

Highlights from the PERC Oxford Research Symposium: II

July 10, 2024

Are Some Angels Better Than Others? – (Presentation)

Abstract: This paper explores the tremendous variation in investment performance of angel investors. The returns are highly skewed: Despite the massive losses incurred in most investments, the mean return is twice the invested capital. Investor fixed effects explain far more of the total variation in angel performance than any collection of observable factors. “Better angels” do not earn higher returns by avoiding left-tail realizations as much as they do by achieving extreme right-tail outcomes. As explanations for the performance differences, we contrast better access to deal flow with better deal selection and find that industry-specific knowledge along with deal-selection skill is important.

Authors: Johan Karlsen, Norwegian School of Economics; Katja Kisseleva, Frankfurt School of Finance & Management (presenting); Aksel Mjøs, Norwegian School of Economics; David Robinson, Duke Fuqua School of Business

Interim Valuations, Predictability, and Outcomes in Private Equity – (Presentation)

Abstract: Using a novel dataset of U.S. buyout and VC investments, we study the informativeness of managers’ interim valuation reports of portfolio companies on final outcomes. We find that when investors assess the performance of individual portfolio companies, they can do better than just relying on the most recent reported valuation. The history of reported valuations is informative as well. Particularly for buyout funds, portfolio company investments with greater past staleness or more frequent markdowns tend to perform more poorly in the future than other investments. Moreover, investments with larger reported interim marks tend to have lower future returns. That is, past reported returns negatively predict future realized returns. Based on this predictability, the combined knowledge over interim multiple, past staleness, and past markdown frequency can help predict whether an investment will end up in the left or right tail of all investments. These predictions are informative as early as the first year of the investment.

Authors: Ege Y. Ercan, Stanford Graduate School of Business (presenting); Steven N. Kaplan, University of Chicago, Booth School of Business; Ilya A. Strebulaev, Stanford Graduate School of Business

Highlights from the PERC Oxford Research Symposium: I

June 5, 2024

Risk-Adjusting the Returns to Private Debt Funds – (Presentation)

Abstract: Private debt funds are the fastest growing segment of the private capital market. We evaluate their risk-adjusted returns, applying a cash-flow based method to form a replicating portfolio that mimics their risk profiles. Using both equity and debt benchmarks to measure risk, a typical private debt fund produces an insignificant abnormal return to its investors. However, gross-of-fee abnormal returns are positive, and using only debt benchmarks also leads to positive abnormal returns as funds contain equity risks. The rates at which private debt funds lend appear to be high enough to offset the funds’ fees and risks, but not high enough to exceed both their fees and investors’ risk-adjusted rates of return.

Authors: Isil Erel, The Ohio State University, NBER, and ECGI; Thomas Flanagan, The Ohio State University; Michael Weisbach, The Ohio State University, NBER, and ECGI (Presenting)

Undervaluation Induced LBOs – (Presentation)

Abstract: This paper shows that market timing drives private equity activity. Using mutual fund fire sales as a source of target undervaluation, we show that both public-toprivate and private-to-private deals are more common following a fire sale. Since fire sales are unrelated to firm fundamentals, we use this setting to provide causal evidence on the effects of private equity ownership on targets’ characteristics.

Authors: Dyaran S. Bansraj, City, University of London, Bayes Business School (Presenting); Aneel Keswani, City, University of London, Bayes Business School; Per Strömberg, Swedish House of Finance and Stockholm School of Economics; Francisco Urzúa I., City, University of London, Bayes Business School