The Determinants of Investment in Private Equity and Venture Capital: Evidence from American and Canadian Pension Funds

Abstract

This paper provides a comparative analysis of pension plan allocations to private equity and to venture capital in the United States and in Canada. Although the assets of American funds in our data are worth 10 times those of Canadian funds, their investment in private equity is about 20 times larger. In both countries, asset size is an important determinant of both the decision to invest in private equity and of how much to invest in that asset class. However, asset size does not appear as a significant determinant of investment in venture capital. The difference in pension fund asset sizes appears to explain well the differences in the decision to invest in private equity, but it is not sufficient to explain the differences in the amount invested in this type of assets. We examine other possible explanatory factors, such as geographical location, the institutional environment, and regulatory constraints.

Keywords: Pension fund, private equity, venture capital, assets, type, location, United States, Canada

JEL Classification: G23, G24, G11