Research

Publications

1. Benchmarking Private Equity Performance when Fund Cash Flows Are Missing

(Li, Da, and Timothy Riddiough. 2025. The Journal of Real Estate Finance and Economics.)

Abstract: Private equity data are often missing detailed fund cash flow information that provides the basis for reported fund performance metrics. Academic studies of relative private equity fund performance that apply methods such as public market equivalent or standard asset pricing specifications require detailed fund cash flow information, implying that funds without this information are omitted from formal study. These omissions are important, as sample sizes in private equity performance studies are relatively small – often in the hundreds and rarely over several thousand. To address this problem, we propose three simulation methods with which to benchmark private equity performance for funds without cash flows: fund covariate regression-machine learning (FCR-ML) methods, synthetic cash flow methods, and cash flow regression-ML methods. Among the three types of methods, the FCR-ML method stands out, providing the most unbiased and least noisy estimates of benchmarked fund performance. For the samples we work within this study, the FCR-ML method provides an almost 100% confidence level that the estimated performance measure is within the 0.25% tolerance level of the true value. We further show that real estate funds have the highest cash flow predictability, and risky fund strategies gain lower excess returns. 

Presentations: UF Research Conference on Machine Learning in Finance (Online, US); UNC Real Estate Research Symposium (Chapel Hill, US)

(Press Exposure: SSRN top 10 download list in Real Estate eJournal)

2. Unnatural Selection in Private Equity Real Estate?

(Li, Da, and Timothy Riddiough. 2025. The Journal of Portfolio Management.)

Abstract: The traditional narrative in private equity asserts that market forces favor the survival of top-performing general partners, with weaker managers gradually exiting the industry. This pattern holds in buyout and venture capital, where data suggest consistent performance-based selection. Based on the authors’ previous work, however, this mechanism appears to break down in real estate after the fourth fund. In this article, the authors briefly restate that empirical pattern and examine variables that may explain the persistence of underperforming fund managers in private equity real estate.

Working Papers

1.Search Frictions, Investment Strategies, and Performance in Private Equity

(funded by Real Estate Research Institute ($15,000), Chicago, 2024)

Abstract: This paper develops a general equilibrium model of search and matching between institutional investors and private equity fund managers to explain the variation in net-of-fee returns, fund size, and market tightness across submarkets by fund manager skill levels. Skilled fund managers oversee larger funds in tighter submarkets and achieve higher net returns. Adverse selection arising from asymmetric information about fund manager skills reduces fund size but increases both market tightness and returns. The model also accounts for investor sophistication through investor noise allocation and the demand for return smoothing due to incomplete accounting information associated with NAV appraisal. Less-sophisticated investors introduce distortions into the market, resulting in lower net-of-fee returns, while low-skilled fund managers depend more on smoothing. Utilizing a deep neural network method and fund of funds data, this paper offers novel identifications of market tightness and noise allocators. The empirical findings align with the model’s predictions. An event case study of pension fund private equity investments further confirms these predictions, underscoring how search frictions influence fund selection, capital allocation, and performance.

Presentations: Boca Finance and Real-Estate Conference (Boca Raton, US); 32nd Colloquium on Pensions and Retirement Research (IPRA) (Online, Australia); FMA Annual Meeting Special PhD Paper Presentations (Grapevine, US); Market with Frictions in Economics and Finance (Madison, US); Real Estate Brownbag (Madison, US)

2. Good vs Bad Networking in Private Equity Public Pension Fund Investment

(funded by Real Estate Research Institute ($15,000) with Timothy Riddiough, Chicago, 2022)

Abstract: This paper investigates how pension fund networks influence private equity real estate investment performance, and further explores the mechanisms behind network formation. Pension funds with access to parts of the overall network that others do not have (stronger networks) generate superior performance relative to pension funds that simply have more network connections or have connections with influential fund managers (weaker networks). Strong networking correlates positively with less fund manager lock-in, better first-time fund manager selection, and lower-risk investments that ultimately deliver better performance. Pension funds that target high expected returns, generate lower past returns, require higher employee retirement contributions, and experience higher CEO and board turnover rates form weaker networks that impair their performance. Those pension funds get locked into the pre-existing GP networks, and a vicious cycle forms with weaker-networked pension funds adopting riskier investment strategies that fail to perform well. This results in greater funding gaps that lead to more aggressive investment strategies. These effects are attenuated somewhat if pension funds link to well-connected consultants that improve access to better-performing GPs. In contrast, pension funds that are well-connected across the whole network structure experience a more virtuous cycle that results in a more solvent fund.

Presentations: 2024 AREUEA-ASSA Annual Meeting (San Antonio, US); AREUEA International Conference (Cambridge, UK); State of Wisconsin Investment Board Meeting (Madison, US); FSU-UF Critical Issues in Real Estate Symposium (Tallahassee, US); RERI Annual Meeting (Chicago, US); UWM Real Estate Seminar (Madison, US)

3. Persistently Poor Performance in Private Equity Real Estate with Timothy Riddiough

(Press Exposure: SSRN top 10 downloads in more than 20 eJournals, Institutionalinvestor, Globest, RCLCO, PREA, etc.)

Abstract: We compare Buyout (BO), Venture Capital (VC), and Private Equity Real Estate (RE) funds. RE funds underperform BO and VC, as well as the public market alternative. In RE, worse- performing fund managers survive at a high rate. They are also susceptible to diseconomies of fund scale, with no skill-based persistence to offset the negative scale effects. Analysis of noisy fund manager selection indicates that RE investors are not disadvantaged relative to BO and VC. LP investors in RE funds seem to be optimizing something other than, or in addition to, investment return when selecting fund managers.

Presentations: Real Estate Finance and Investment Symposium (Cambridge, UK); FSU-UF Critical Issues in Real Estate Symposium (Tallahassee, US); 2023 AREUEA-ASSA Annual Meeting (New Orleans, US); 

4. Eviction Regulations and Private Equity Investments in Multifamily Property

Abstract: Relying on multiple high-cost data sources, including CoreLogic, Preqin, Axle Reference Solutions, Princeton Eviction Lab, and Legal Services Corporation (LSC) Eviction Law, this study aims to explore the impact of local eviction policies on the investment choices of fund managers in the multifamily housing sector, and analyze the outcomes of these investments in terms of performance and social welfare. The typical investment strategy employed by private equity (PE) firms in this sector involves purchasing pre-existing multifamily properties, displacing existing tenants, and renovating the buildings in order to reduce expenses and increase rents, with the goal of adding significant value over the holding period. Holding periods are often only three to five years. Given such brief investment horizons, these firms often face the need to promptly evict current tenants. Soft eviction regulations may facilitate swifter project execution and benefit PE firms with better market timings, potentially enhancing yields. This study evaluates this hypothesis by delving into the investment process and the broader impact of PE activities on local economies.

Presentations: 2025 UNC CREDA meeting