Date of Original Version
10-2008
Type
Working Paper
Abstract or Table of Contents
We present a simple model that rationalizes performance persistence in private equity partnerships. In contrast to the model for mutual funds of Berk and Green (2004), the learning in our model pertains to profi tability associated with an emerging sector or an innovative trading strategy, rather than ability specfii c to the fund manager. As a result of potential information spillovers, which would increase competition in the sector if informed investors were to partner with nonincumbent managers, incumbent managers will let informed investors benefi t from increases in estimated pro fitability following high realized returns in the sector.