Abstract

http://ssrn.com/abstract=2159229
 
 

Citations (2)



 


 



The Disintermediation of Financial Markets: Direct Investing in Private Equity


Lily H. Fang


INSEAD - Finance

Victoria Ivashina


Harvard University; National Bureau of Economic Research (NBER)

Josh Lerner


Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

January 13, 2014


Abstract:     
This is the first large-sample study of direct private equity investments by institutional investors. The analysis uses a proprietary dataset of all such investments by seven large institutional investors over twenty years. Despite the substantial fee discounts, we find little evidence of attractive relative performance by direct investments. In particular, co-investments underperform traditional fund investments: this poor performance appears to result from fund managers’ selective offering of deals at market peaks as co-investments. While some solo direct investments outperform fund investments, this is concentrated in the earlier part of the sample and less information-sensitive transactions. The performance of both co-investments and solo investments deteriorates sharply in the 2000s, suggesting that any information advantage may have disappeared as the private equity industry became more competitive. Overall, our evidence suggests that institutional investors may find it difficult to capture the rents earned by private equity managers by investing directly.

Number of Pages in PDF File: 52

Keywords: Financial Intermediation, Private Equity, Direct Investment, Co-investment

JEL Classification: G20, G23

working papers series


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Date posted: October 9, 2012 ; Last revised: January 15, 2014

Suggested Citation

Fang, Lily H. and Ivashina, Victoria and Lerner, Josh, The Disintermediation of Financial Markets: Direct Investing in Private Equity (January 13, 2014). Available at SSRN: http://ssrn.com/abstract=2159229 or http://dx.doi.org/10.2139/ssrn.2159229

Contact Information

Lily H. Fang
INSEAD - Finance ( email )
Boulevard de Constance
F-77305 Fontainebleau Cedex
France
Victoria Ivashina (Contact Author)
Harvard University ( email )
Harvard Business School
Baker Library 233
Boston, MA 02163
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Josh Lerner
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-6065 (Phone)
617-496-7357 (Fax)
HOME PAGE: http://www.people.hbs.edu/jlerner/
Harvard University - Entrepreneurial Management Unit
Cambridge, MA 02163
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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