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http://ssrn.com/abstract=657482
 
 

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Smart Institutions, Foolish Choices?: The Limited Partner Performance Puzzle


Antoinette Schoar


Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Wan Wongsunwai


Northwestern University

Josh Lerner


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

January 2005

MIT Sloan Research Paper No. 4523-05
AFA 2006 Boston Meetings Paper

Abstract:     
The returns that institutional investors realize from private equity investments differ dramatically across institutions. Using detailed and hitherto unexplored records of fund investors and performance, we document large heterogeneity in the performance of different classes of limited partners. In particular, endowments' annual returns are nearly 14% greater than average. Funds selected by investment advisors and banks lag sharply. These results are robust to controlling for the type and year of the investment, as well as to the use of different specifications. Analyses of reinvestment decisions and young funds suggest that the results are not primarily due to endowments' greater access to established funds. Finally, we examine the differences in the choice of intermediaries across various institutional investors and their relationship to success. We find that LPs that have higher average IRRs also tend to invest in older funds and have a smaller fraction of GPs in their geographic area, and that the performance of university endowments is correlated with measures of the quality and loyalty of the student body.

Number of Pages in PDF File: 66

Keywords: limited partners, LPs, endowments, institutional investors

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Date posted: January 31, 2005  

Suggested Citation

Schoar, Antoinette and Wongsunwai, Wan and Lerner, Josh, Smart Institutions, Foolish Choices?: The Limited Partner Performance Puzzle (January 2005). ; AFA 2006 Boston Meetings Paper. Available at SSRN: http://ssrn.com/abstract=657482 or http://dx.doi.org/10.2139/ssrn.657482

Contact Information

Antoinette Schoar (Contact Author)
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
50 Memorial Drive, E52-447
Cambridge, MA 02142
United States
617-253-3763 (Phone)
617-258-6855 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Wan Wongsunwai
Northwestern University ( email )
2001 Sheridan Road
Evanston, IL 60208
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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