The Boundary of the PE Centered Investment Firm

49 Pages Posted: 16 Sep 2010 Last revised: 27 Sep 2010

Daniel Kukla

Columbia Business School; TU Berlin

Date Written: September 2010

Abstract

The central concept of an investment firm is fuzzier than might immediately appear. Why do investment firms exist at all? What should be the range of their activities? This exploratory study investigates forces which shape the boundary of the investment firm by analyzing firms in the Private Equity industry. The PE industry offers a rich ground for research, given that substantial parts of the PE universe have been rapidly migrating from traditional single-product PE firms towards multi-business investment firms. Based on interviews with senior investment professionals and executives from leading PE firms and based on case studies, I find that the boundary of the firm is determined by the trade-off between expansion enhancers, in particular ‘deal sourcing advantages’, ‘capital sourcing advantages’, ‘procurement cost advantages’ and ‘information sharing advantages’, and expansion inhibitors, particularly ‘conflicts of interest’, ‘asset allocation authority’, and ‘parenting disadvantages’. Moreover, I speculate that if the new generation of multi-business investment firm models succeeds, they may fill the gap which most recent regulation has created in the commercial and investment banking industry, given that multi-business firms are not scrutinized to the same extent.

Keywords: private equity, PE, venture capital, single-product, multi-business, investment firm, business model, boundary, diversification, heterogeneity view

Suggested Citation

Kukla, Daniel, The Boundary of the PE Centered Investment Firm (September 2010). Available at SSRN: https://ssrn.com/abstract=1658541 or http://dx.doi.org/10.2139/ssrn.1658541

Daniel Kukla (Contact Author)

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

TU Berlin ( email )

Straße des 17
Juni 135
Berlin, 10623
Germany

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