Investor Scale and Performance in Private Equity Investments

Review of Finance, Forthcoming

40 Pages Posted: 22 Dec 2012 Last revised: 16 Aug 2015

See all articles by I. J. Alexander Dyck

I. J. Alexander Dyck

University of Toronto - Rotman School of Management

Lukasz Pomorski

AQR Capital Management, LLC

Date Written: November 1, 2014

Abstract

We document that defined benefit pension plans with significant holdings in private equity (PE) earn substantially greater returns than plans with small holdings in both the 1990s and the 2000s. A one standard deviation increase in PE holdings is associated with 4% greater returns per year. Up to one third of this outperformance comes from lower costs that we link to economizing on costly intermediation by avoiding fund-of-funds and investing directly. The bulk of the outperformance comes from superior gross returns only partially explained by access and experience. We conjecture that larger PE investors have superior due diligence and ability to bridge information asymmetries in PE.

Keywords: private equity, alternative assets, pension funds, investment management, size, economies of scale

JEL Classification: G11, G20, G23

Suggested Citation

Dyck, I.J. Alexander and Pomorski, Lukasz, Investor Scale and Performance in Private Equity Investments (November 1, 2014). Review of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2192619 or http://dx.doi.org/10.2139/ssrn.2192619

I.J. Alexander Dyck

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S 3E6
Canada
416-946-0819 (Phone)

Lukasz Pomorski (Contact Author)

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

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