Local Overweighting and Underperformance: Evidence from Limited Partner Private Equity Investments
Yael V. Hochberg
Northwestern University - Kellogg School of Management; NBER
Joshua D. Rauh
Stanford Graduate School of Business; National Bureau of Economic Research (NBER)
January 31, 2012
Institutional investors exhibit substantial home-state bias in private equity. This effect is particularly pronounced for public pension fund investments in venture capital and real estate. Public pension funds achieve performance on in-state investments that is 2-4 percentage points lower than both their own similar out-of-state investments and similar investments in their state by out-of-state investors. States with political climates characterized by more self-dealing invest a larger share of their portfolio locally. Relative to the performance of the rest of the private equity universe, overweighting and underperformance in local investments reduce public pension fund resources by $1.2 billion per year.
Number of Pages in PDF File: 87
Keywords: Public Pension Funds, Portfolio Choice, Private Equity, Home Bias, Limited Partner Performance Puzzle
JEL Classification: G11, G23, G24, M13working papers series
Date posted: March 31, 2011 ; Last revised: October 18, 2012
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