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

41 Pages Posted: 23 May 2022

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; Leibniz Institute for Financial Research SAFE

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Abstract

Private equity managers are required to invest in the funds they manage. We examine the incentive effects of this ownership on the delegated acquisition decision. A simple model shows that managers select less risky firms and apply more debt, the higher their fund ownership. We test these predictions for a sample of Norwegian private equity acquisitions, using managers’ personal wealth to capture their different risk preferences. Consistent with the model, target company cash-flow risk decreases and leverage increases with the manager’s ownership scaled by wealth. Moreover, the higher the ownership, the smaller is relative deal size, increasing overall fund diversification.

Keywords: Private equity, incentives, fund manager, ownership, risk-taking, wealth

Suggested Citation

Bienz, Carsten and Thorburn, Karin S. and Walz, Uwe, Fund Ownership, Wealth, and Risk-Taking: Evidence on Private-Equity Managers. Available at SSRN: https://ssrn.com/abstract=4117560 or http://dx.doi.org/10.2139/ssrn.4117560

Carsten Bienz

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen
Norway

Karin S. Thorburn (Contact Author)

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

Leibniz Institute for Financial Research SAFE ( email )

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

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