Persistence of Private Equity Excess Returns: Europe vs. North America

Abstract Despite the Efficient Market Hypothesis suggesting that historical performance doesn’t predict future results, private equity – particularly venture capital and buyout funds – exhibits an anomaly known as performance persistence. The findings in this paper reveal significant performance persistence across the whole dataset, where the performance of the last two fund generations strongly predicts future outcomes. However, a key contribution of this paper to the existing literature is the finding that performance persistence may not be a universal industry-wide phenomenon, as previously suggested. Instead, the results indicate that performance persistence is primarily driven by North American funds, while European funds exhibit significantly less persistence. Additionally, higher past performance correlates with stronger fundraising growth, and persistence is more pronounced when fundraising rounds occur in shorter time frames, suggesting that similar market conditions influence fund performance.