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Local Overweighting and Underperformance: Evidence from Limited Partner Private Equity Investments

87 Pages Posted: 31 Mar 2011 Last revised: 5 Feb 2016

Yael V. Hochberg

National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business

Joshua D. Rauh

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere 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

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

Yael V. Hochberg (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Rice University - Jesse H. Jones Graduate School of Business ( email )

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P.O. Box 1892
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Joshua D. Rauh

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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