Portfolio Management in Private Equity / Gregory W. Brown, Celine Yue Fei, David T. Robinson.

Format:

Book

Author/Creator:

Brown, Gregory W.

Contributor:

National Bureau of Economic Research.

Fei, Celine Yue.

Robinson, David T.

Series:

Working Paper Series (National Bureau of Economic Research) no. w31664.

NBER working paper series no. w31664

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

General Partners (GPs) in private equity face a trade-off between focusing their skills and effort on fewer investments to earn higher returns, or investing more broadly to reduce risk through diversification. Using a novel, deal-level dataset of 5,925 global investments from 1999 to 2016, we show that these portfolio considerations are important for understanding fund-level private equity returns. The largest investments in PE funds typically have the lowest returns on average, but are also the least risky. Returns and risk are both increasing in industry or geographic concentration. And while GP-specific return variation (e.g., skill) only accounts for 4%-6% of the total return variation of a typical investment, it accounts for around 40% of the return variation at the fund level. These findings show that GPs use portfolio construction, and not just deal selection, to seek risk-adjusted fund-level returns.

Notes:

Print version record

September 2023.