Local Overweighting and Underperformance: Evidence from Limited Partner Private Equity Investments
87 Pages
Posted: 31 Mar 2011
Last revised: 5 Feb 2016
National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business
Stanford Graduate School of Business; National Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written: January 31, 2012
Abstract
Institutional investors exhibit substantial home-state bias in private equity. This effect is particularly pronounced for public pension fund investments in venture capital and real estate. Public pension funds achieve performance on in-state investments that is 2-4 percentage points lower than both their own similar out-of-state investments and similar investments in their state by out-of-state investors. States with political climates characterized by more self-dealing invest a larger share of their portfolio locally. Relative to the performance of the rest of the private equity universe, overweighting and underperformance in local investments reduce public pension fund resources by $1.2 billion per year.
Keywords: Public Pension Funds, Portfolio Choice, Private Equity, Home Bias, Limited Partner Performance Puzzle
JEL Classification: G11, G23, G24, M13
Suggested Citation:
Suggested Citation
Hochberg, Yael V. and Rauh, Joshua D., Local Overweighting and Underperformance: Evidence from Limited Partner Private Equity Investments (January 31, 2012). Available at SSRN: https://ssrn.com/abstract=1798747 or http://dx.doi.org/10.2139/ssrn.1798747
