Ownership, Wealth, and Risk Taking: Evidence on Private Equity Fund Managers

36 Pages Posted: 7 Oct 2019

See all articles by Carsten Bienz

Carsten Bienz

Norwegian School of Economics (NHH)

Karin S. Thorburn

Norwegian School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Uwe Walz

Goethe University Frankfurt - Institute of Economics; Center For Financial Studies (CFS); Leibniz Institute for Financial Research SAFE

Multiple version iconThere are 2 versions of this paper

Date Written: August 2019

Abstract

We examine the incentive effects of private equity (PE) professionals' ownership in the funds they manage. In a simple model, we show that managers select less risky firms and use more debt financing the higher their ownership. We test these predictions for a sample of PE funds in Norway, where the professionals' private wealth is public. Consistent with the model, firm risk decreases and leverage increases with the manager's ownership in the fund, but largely only when scaled with her wealth. Moreover, the higher the ownership, the smaller is each individual investment, increasing fund diversification. Our results suggest that wealth is of first order importance when designing incentive contracts requiring PE fund managers to coinvest.

Keywords: buyouts, general partner, incentives, ownership, private equity, Risk Taking, Wealth

JEL Classification: D86, G12, G31, G32, G34

Suggested Citation

Bienz, Carsten and Thorburn, Karin S. and Walz, Uwe, Ownership, Wealth, and Risk Taking: Evidence on Private Equity Fund Managers (August 2019). CEPR Discussion Paper No. DP13944, Available at SSRN: https://ssrn.com/abstract=3464467

Carsten Bienz (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen
Norway

Karin S. Thorburn

Norwegian School of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway
+4755959283 (Phone)

HOME PAGE: http://www.nhh.no/cv/thorburn

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

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

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

Uwe Walz

Goethe University Frankfurt - Institute of Economics ( email )

Postfach 81
D-60054 Frankfurt
Germany

Center For Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
242
PlumX Metrics