The Disintermediation of Financial Markets: Direct Investing in Private Equity

49 Pages Posted: 9 Oct 2012 Last revised: 15 Feb 2018

See all articles by Lily H. Fang

Lily H. Fang

INSEAD - Finance

Victoria Ivashina

Harvard University; National Bureau of Economic Research (NBER)

Josh Lerner

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

Multiple version iconThere are 2 versions of this paper

Date Written: September 3, 2014

Abstract

We examine twenty years of direct private equity investments by seven large institutions. These direct investments perform better than public market indices, especially buyout investments and those made in the 1990s. Outperformance by the direct investments, however, relative to the corresponding private equity fund benchmarks is limited and concentrated among buyout transactions. Co-investments underperform the corresponding funds with which they co-invest, due to an apparent adverse selection of transactions available to these investors, while solo transactions outperform fund benchmarks. Investors’ ability to resolve information problems appears to be an important driver of solo deal outcomes.

Keywords: Financial Intermediation, Private Equity, Direct Investment, Co-investment

JEL Classification: G20, G23

Suggested Citation

Fang, Lily H. and Ivashina, Victoria and Lerner, Josh, The Disintermediation of Financial Markets: Direct Investing in Private Equity (September 3, 2014). Journal of Financial Economics (JFE), 116 (1), 160-178, 2015. Available at SSRN: https://ssrn.com/abstract=2159229 or http://dx.doi.org/10.2139/ssrn.2159229

Lily H. Fang

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

Victoria Ivashina (Contact Author)

Harvard University ( email )

Harvard Business School
Baker Library 233
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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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