Selling Private Equity Fees

Abstract

We examine private equity (PE) firms’ minority stake sales and the impact of these sales on agency frictions with fund investors. PE firms that have sold minority stakes – primarily to other PE firms – oversee 27% of PE Assets Under Management in 2020. PE firms with strong fundraising and investment records tend to sell stakes. Sellers subsequently experience substantial increases in capital raised (41%) and income (55%). We find no evidence of deteriorating fund performance. Sellers invest more capital in their funds, increase employment, and make investor-friendly distributions. Our results suggest that the reduced “skin-in-the-game” from stake sales does not exacerbate agency frictions between sellers and their fund investors.

Keywords: Private Equity, General Partner, Fees, Fund Managers, Agency Conflicts, External Financing, Minority Acquisition

JEL Classification: G24, G30, G34