Mutual Fund Investments in Private Firms

79 Pages Posted: 27 Mar 2017 Last revised: 18 Sep 2019

See all articles by Sungjoung Kwon

Sungjoung Kwon

Wayne State University - Mike Ilitch School of Business

Michelle Lowry

Drexel University; European Corporate Governance Institute (ECGI)

Yiming Qian

University of Connecticut - Department of Finance

Date Written: May 11, 2019

Abstract

Historically a key advantage of being a public firm was broader access to capital, from a disperse group of shareholders. In recent years, such capital has increasingly become available to private firms as well. We document a dramatic increase over the past twenty years in the number of mutual funds participating in private markets and in the dollar value of these private firm investments. We evaluate several factors that potentially contribute to this trend: firms seeking extra capital to postpone public listing; mutual funds seeking higher risk-adjusted returns and IPO allocations; and, VCs seeking new investors to substantiate higher valuations. Results provide the strongest support for the first two factors.

Keywords: private firm, mutual fund, IPO

JEL Classification: G23, G24, G32

Suggested Citation

Kwon, Sungjoung and Lowry, Michelle B. and Qian, Yiming, Mutual Fund Investments in Private Firms (May 11, 2019). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2941203 or http://dx.doi.org/10.2139/ssrn.2941203

Sungjoung Kwon

Wayne State University - Mike Ilitch School of Business ( email )

2771 Woodward Ave
Detroit, MI 48201

Michelle B. Lowry (Contact Author)

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Yiming Qian

University of Connecticut - Department of Finance ( email )

2100 Hillside Road U-1041F, Room 452
Storrs, CT 06269
United States
860-486-2774 (Phone)

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