Picking Partners: Manager Selection in Private Equity

Abstract

We study the selection of private equity managers (GPs) for over 100,000 capital commitments by global institutional investors (LPs) choosing from a plausible contemporaneous opportunity set. LPs have a tendency to select first-time or young GPs without a performance history, even more so than GPs in the 4th quartile of past performance. Allocation to such GPs is related to founding partners’ human capital and to LPs’ need to reach their private equity target weight. This proclivity, and various other criteria that are relevant for selection, do not appear to provide information material for future performance.

Keywords: private equity, manager selection

JEL Classification: G10, G11, G20, G23, H55, H75, J32