Investor Scale and Performance in Private Equity Investments
Review of Finance, Forthcoming
40 Pages Posted: 22 Dec 2012 Last revised: 16 Aug 2015
Date Written: November 1, 2014
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: Suggested Citation