Characterization of the Reputation of Private Equity Managers: Evidence in Spain

Abstract

In the light of the Agency and Signalling Theories, the aim of this paper is to analyse the relationship between investors and private equity managers in order to identify the factors that affect the latter's reputation. Since there are no individual references about their past returns, the reputation of such players is thought to be linked to their capacity for obtaining new funds in countries such as Spain. Two groups of variables that might affect reputation are identified: variables in the first group are linked to the private equity cycle, and those in the second are related to the external image of the operator. The analysis focuses on the activity of almost all private equity investors operating in Spain during 1991-2001. The results provide evidence that the size of the funds under management and the belonging to the National Private Equity Association are exogenous characteristics of the highest importance. Evidence of the volume of investments recorded in the past acts as an indicator of the ability to manage larger amounts of capital. Because of the wide variety of private equity firms, the analysis is completed for diverse groups, which may behave in a different manner.

Keywords: Fundraising, private equity, reputation; agency, signalling theory

JEL Classification: G24, G34