56 Pages Posted: 23 Mar 2009 Last revised: 17 Jan 2014
Date Written: August 2, 2013
We document the wide dispersion of private equity investment returns and examine performance determinants using a newly constructed database of 7,500 investments worldwide. One in ten investments does not return any money, whereas one in four has an IRR above 50%. Quick flips are associated with some of the highest returns. Performance does not appear scalable: Investments held by private equity firms in periods with a high number of simultaneous investments underperform substantially. Results are consistent with the theoretical literature on organizational diseconomies linked to firm structure. Private equity firms’ actions do not appear to be mechanical or easily scalable.
Keywords: private equity, diseconomies of scale
JEL Classification: G24
Suggested Citation: Suggested Citation
Lopez de Silanes, Florencio and Phalippou, Ludovic and Gottschalg, Oliver, Giants at the Gate: Investment Returns and Diseconomies of Scale in Private Equity (August 2, 2013). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming; AFA 2010 Atlanta Meetings Paper; EFA 2009 Bergen Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1363883 or http://dx.doi.org/10.2139/ssrn.1363883