Investing Outside the Box: Evidence from Alternative Vehicles in Private Equity

66 Pages Posted: 13 Aug 2018 Last revised: 23 May 2019

See all articles by Josh Lerner

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Jason Mao

State Street Corporate

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Nan R. Zhang

State Street Global Exchange

Multiple version iconThere are 2 versions of this paper

Date Written: May 18, 2019

Abstract

This paper uses previously unexplored custodial data to examine the use of alternative investment vehicles in private equity over four decades. We document a steep increase in the capital directed to alternative vehicles, with these vehicles approaching a 40% share of all PE commitments in 2017. The average performance of alternative vehicles matches that of the overall PE market, but the performance lagged that of the general partners’ corresponding main funds. The best performance in alternative vehicles was by endowments, private pensions, and insurers. Finally, LPs with better past performance invested in alternative vehicles with better performance, even after conditioning on the general partners’ past records. The results suggest that returns in private equity increasingly depend on the match between GPs and LPs and both parties’ outside options.

Suggested Citation

Lerner, Josh and Mao, Jason and Schoar, Antoinette and Zhang, Nan R., Investing Outside the Box: Evidence from Alternative Vehicles in Private Equity (May 18, 2019). Harvard Business School Entrepreneurial Management Working Paper No. 19-012; Harvard Business School Finance Working Paper No. 19-012. Available at SSRN: https://ssrn.com/abstract=3230145 or http://dx.doi.org/10.2139/ssrn.3230145

Josh Lerner (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
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HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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Jason Mao

State Street Corporate ( email )

1 Lincoln Street
Boston, MA 02111
United States

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

50 Memorial Drive, E52-447
Cambridge, MA 02142
United States
617-253-3763 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nan R. Zhang

State Street Global Exchange ( email )

1 Lincoln Street
Boston, MA 02110
United States

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