Intermediation in Private Equity: The Role of Placement Agents

50 Pages Posted: 29 Mar 2015 Last revised: 14 Jul 2017

See all articles by Matthew D. Cain

Matthew D. Cain

Berkeley Center for Law and Business

Stephen B. McKeon

University of Oregon - Department of Finance

Steven Davidoff Solomon

University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy; European Corporate Governance Institute

Date Written: July 10, 2017

Abstract

Intermediation in private equity involves illiquid investments, professional investors, and high information asymmetry. We use this unique setting to empirically evaluate theoretical predictions regarding intermediation. Placement agent usage has become nearly ubiquitous, but agents are associated with significantly lower abnormal returns in the cross-section. However, returns are higher for funds employing a top-tier agent, and for first-time funds employing an agent. We also find evidence that agents may mitigate investment risk. Our results provide support for both the certification and influence peddling roles of intermediaries discussed in theoretical literature, suggesting heterogeneous motives for intermediation in the private equity industry.

Keywords: certification, reputation, financial literacy, sophisticated investors

JEL Classification: G11, G20, G23, G24

Suggested Citation

Cain, Matthew D. and McKeon, Stephen B. and Davidoff Solomon, Steven, Intermediation in Private Equity: The Role of Placement Agents (July 10, 2017). Available at SSRN: https://ssrn.com/abstract=2586273 or http://dx.doi.org/10.2139/ssrn.2586273

Matthew D. Cain

Berkeley Center for Law and Business ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

Stephen B. McKeon (Contact Author)

University of Oregon - Department of Finance ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

Steven Davidoff Solomon

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

University of California, Berkeley - Berkeley Center for Law, Business and the Economy ( email )

Berkeley, CA 94720-7200

European Corporate Governance Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Register to save articles to
your library

Register

Paper statistics

Downloads
1,409
rank
12,542
Abstract Views
3,647
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information