Information Asymmetries in Private Equity: Reporting Frequency, Endowments, and Governance

NACUBO stands for the National Association of College and University Business Officers which is a membership organization representing more than 1,900 colleges and universities across the U.S.

PitchBook database is a relatively new source to the academic literature and in recent studies by Brown, Harris, Jenkinson, Kaplan and Robinson (2015) and Harris, Jenkinson and Kaplan (2015), they discovered that PitchBook's coverage is pretty similar to other private equity databases, such as Preqin, Cambridge Associates and Burgiss, in North America but varies outside this region. According to PitchBook, the data are mainly obtained from filings, press releases and websites, and collected, verified, and integrated with additional information by their data teams. Their research team also surveys companies, advisers, investors, lawyers, accountants, and lenders to cross-validate collected data and to gather additional information (see https://​pitchbook.​com/​research-process for detailed information about how PitchBook collect data). Recent research on private equity and angel investors are using this database as the main data source (Cumming and Zhang, 2019; Fuchs, Füss, Jenkinson and Morkoetter, 2019).

We were initially concerned with the quality of the data as some LPs received more than 12 performance reports a year. Our concerns were however alleviated as we sought clarification from our data provider. We were informed that the valuations of unexited portfolio companies that appear in the fund/LP reports are the valuations reported by the GPs to the LPs. GPs are usually (depending on geography) required to value their holdings at least once a year (some do it much more frequently with varying levels of conservativeness) and this is reflected in the NAV and unrealized gains to the LPs. Such reporting behaviors are thus reflected how GPs report performances to LPs.

Distributed value to paid-in ratio (DPI) is the ratio of distributions paid out to investors to the original invested capital and residual value to paid-in ratio (RVPI) which is the of remaining portfolio holdings as valued by the PE fund to the original invested capital per year. Total value to paid-in ratio (TVPI) is the sum of the DPI and RVPI of the PE fund which measures the total returns in each year.

We realize that the relatively small number of endowments in our sample may be something of a concern. However, because the total of their observations is more than 6% of our entire sample, we do not believe this poses a serious problem. Note further that, in un-tabulated results, we performed a detailed analysis of the nine endowments, and we are certain our results are not caused by, nor do they suffer from, a bias toward the well-performing endowments in our sample. The top three performing endowments are quite different from the bottom three when sorting by characteristic. The detailed analysis is not included but is available upon request.