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

56 Pages Posted: 13 Aug 2018 Last revised: 7 May 2020

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 5, 2020

Abstract

Using previously unexplored custodial data, we examine the use of alternative investment vehicles
(AVs) in private equity over four decades. By 2017, AVs reached 40% of all PE commitments.
Average AV performance matches the PE market, but underperforms the main funds of the
partnerships sponsoring AVs. LPs with better past performance invest in AVs with better average
performance, even after conditioning on the GPs’ past records. This result is largely driven by
preferential access of top LPs to top AVs. As a result, returns in PE increasingly depend on the
match between GPs and LPs and both parties’ outside options.

Keywords: Co-investment, limited partner, fund

JEL Classification: G23, G24

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 5, 2020). 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
617-495-6065 (Phone)
617-496-7357 (Fax)

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
Cambridge, MA 02138
United States

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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