Distorting Private Equity Performance: The Rise of Fund Debt

James F. Albertus and Matthew Denes

This paper studies the emergence of debt financing by private equity funds. Using confidential (Burgiss) data on U.S. buyout funds, the authors document the increasing use of subscription lines of credit (SLCs) as an additional source of capital. They find that funds using SLCs tend to reduce the amount of equity invested relative to fund size and delay capital calls. Their results suggest that the use of SLCs increases IRR-based performance by 6.1 percentage points, while multiples-based performance slightly declines. Overall, they provide the first evidence on a new source of capital in private equity and its impact on funds.

Link: Distorting Private Equity Performance: The Rise of Fund Debt