Factors that Determine the Reputation of Private Equity Managers in Developing Markets

Abstract

This paper analyses the factors that determine the reputation of private equity managers in their relationship with investors in developing markets. Our sample comprises almost all private equity managers of Spain. These markets lack information on the track record of managers, so other kind of information should be considered instead by investors. Two groups of variables that might affect reputation are identified: variables in the first group are linked to the private equity activity, and those in the second are related to external characteristics. Regarding the first group, results show that the volume of investments, the ratio number of investments per investment manager and the percentage of total divestments that are carried out through initial public offerings and trade sales act as an indicator of the ability to manage larger amounts of capital. Regarding the second group, we find that the belonging to the national private equity association and the size of the funds under management are exogenous characteristics of the highest importance.

Keywords: Agency and Signaling theories, fundraising, private equity, reputation

JEL Classification: G24, G34