Kaplan and Schoar examined fund-level returns and found wide dispersion around an unremarkable average, with a striking regularity: firms that performed well tended to do so again, and better performers raised subsequent, larger funds. Persistence of this kind barely exists in mutual funds, which makes private markets genuinely different: who the buyer is predicts something.
The Institute’s reading: for an owner selling to a sponsor and rolling equity, this is diligence doctrine. Twenty percent rolled into a top-quartile firm’s deal and twenty percent rolled into a bottom-quartile firm’s deal are not the same asset, and the seller is entitled to ask about realized returns, lost deals and references like any other investor. The buyer diligences you for months; this paper is permission to return the favor.
Later work with better data, Harris, Jenkinson and Kaplan on this shelf, found buyout funds outperforming public markets more clearly than the early data showed; read the two together for the honest arc of the evidence.