Smart Institutions, Foolish Choices? The Limited Partner Performance Puzzle

66 Pages Posted: 15 Mar 2005 Last revised: 10 Aug 2009

See all articles by Josh Lerner

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Wan Wongsunwai

The Chinese University of Hong Kong (CUHK)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2005

Abstract

The returns that institutional investors realize from private equity investments differ dramatically across institutions. Using detailed and hitherto unexplored records of fund investors and performance, we document large heterogeneity in the performance of different classes of limited partners. In particular, endowments' annual returns are nearly 14% greater than average. Funds selected by investment advisors and banks lag sharply. These results are robust to controlling for the type and year of the investment, as well as to the use of different specifications. Analyses of reinvestment decisions and young funds suggest that the results are not primarily due to endowments' greater access to established funds. Finally, we examine the differences in the choice of intermediaries across various institutional investors and their relationship to success. We find that LPs that have higher average IRRs also tend to invest in older funds and have a smaller fraction of GPs in their geographic area, and that the performance of university endowments is correlated with measures of the quality and loyalty of the student body.

Suggested Citation

Lerner, Josh and Schoar, Antoinette and Wongsunwai, Wan, Smart Institutions, Foolish Choices? The Limited Partner Performance Puzzle (February 2005). NBER Working Paper No. w11136. Available at SSRN: https://ssrn.com/abstract=667168

Josh Lerner (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
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HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

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United States

National Bureau of Economic Research (NBER)

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Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

50 Memorial Drive, E52-447
Cambridge, MA 02142
United States
617-253-3763 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Wan Wongsunwai

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

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