Specialization and Performance in Private Equity: Evidence from the Hotel Industry
72 Pages Posted: 16 Dec 2020 Last revised: 17 Jul 2023
Date Written: June 30, 2023
Using granular data for thousands of U.S. hotels over the last two decades, we show that sector-specialist PE firms select operationally more challenging assets, have a greater positive impact on operating profitability, and realize higher capital gains upon exit than do generalists in their respective investments. Our results are consistent with specialists pursuing targeted, hands-on value creation strategies. In contrast, generalists focus on asset management approaches that transfer more easily across investment settings, such as market timing and financial engineering. Our results point towards an equilibrium in the PE industry in which smaller specialists compete with the innate advantages of larger generalists by leveraging industry-specific operating expertise in a chosen market niche.
Keywords: private equity, investment performance, firm ownership, real estate
JEL Classification: G11, G24, G32, R33
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