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Using detailed data on the quarterly cash flows and management contracts for a large sample of private equity funds from 1984-2010, the authors investigate the behavior of private equity cash flows, the determinants of contractual terms, including General Partner (GP) compensation and capital commitments, and the relation between contractual terms and performance. On average, their sample funds have outperformed the S&P 500 on a net-of-fee basis by about 15%, or about 1.5% per year. Performance and cash flows over time are highly correlated with public market conditions. Consequently, funds raised in hot markets underperform in absolute terms (IRR) but not relative to the S&P 500 (PME).
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