Adverse Selection and the Performance of Private Equity Co-Investments

52 Pages Posted: 19 Nov 2016 Last revised: 15 Dec 2018

See all articles by Reiner Braun

Reiner Braun

Technische Universität München (TUM) - TUM School of Management

Tim Jenkinson

University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Christoph Schemmerl

Technische Universität München (TUM) - TUM School of Management

Date Written: December 14, 2018

Abstract

Investors increasingly look for private equity managers to provide opportunities for co-investing outside the fund structure, thereby saving fees and carried interest payments. In this paper we use a large sample of buyout and venture capital co-investments to test how such deals compare with the remaining fund investments. In contrast to Fang, Ivashina and Lerner (2015) we find no evidence of adverse selection. Gross return distributions of co-investments and other deals are similar. Co-investments generally have lower costs to investors. We simulate net returns to investors and demonstrate how reasonably sized portfolios of co-investments significantly out-perform fund returns.

Keywords: Private equity, financial intermediation, co-investment, adverse selection

JEL Classification: G23, G24

Suggested Citation

Braun, Reiner and Jenkinson, Tim and Schemmerl, Christoph, Adverse Selection and the Performance of Private Equity Co-Investments (December 14, 2018). Available at SSRN: https://ssrn.com/abstract=2871458 or http://dx.doi.org/10.2139/ssrn.2871458

Reiner Braun

Technische Universität München (TUM) - TUM School of Management ( email )

Arcisstr. 21
Munich, Deutschland 80333
Germany
+498928925181 (Phone)
+498928925188 (Fax)

HOME PAGE: http://www.ef.wi.tum.de/

Tim Jenkinson (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
United Kingdom
+44 1865 288916 (Phone)
+44 1865 288831 (Fax)

HOME PAGE: http://www.sbs.oxford.edu/timjenkinson

European Corporate Governance Institute (ECGI)

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

HOME PAGE: http://www.ecgi.org

Christoph Schemmerl

Technische Universität München (TUM) - TUM School of Management ( email )

Arcisstraße 21
Munich, 80333
Germany
+49(0)8928925193 (Phone)

HOME PAGE: http://www.ef.wi.tum.de

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