The Disintermediation of Financial Markets: Direct Investing in Private Equity
Lily H. Fang
INSEAD - Finance; Massachusetts Institute of Technology (MIT) - Sloan School of Management
Harvard University; National Bureau of Economic Research (NBER)
Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)
September 3, 2014
Journal of Financial Economics (JFE), Forthcoming
We examine twenty years of direct private equity investments by seven large institutions. These direct investments perform better than public market indices, especially buyout investments and those made in the 1990s. Outperformance by the direct investments, however, relative to the corresponding private equity fund benchmarks is limited and concentrated among buyout transactions. Co-investments underperform the corresponding funds with which they co-invest, due to an apparent adverse selection of transactions available to these investors, while solo transactions outperform fund benchmarks. Investors’ ability to resolve information problems appears to be an important driver of solo deal outcomes.
Number of Pages in PDF File: 49
Keywords: Financial Intermediation, Private Equity, Direct Investment, Co-investment
JEL Classification: G20, G23
Date posted: October 9, 2012 ; Last revised: September 5, 2014
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