The Performance of Private Equity Funds: Does Diversification Matter?

Munich Business Research Working Paper Series No. 2006-14

53 Pages Posted: 17 Jul 2006

See all articles by Ulrich Lossen

Ulrich Lossen

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Date Written: June 2006

Abstract

This paper is the first systematic analysis of the impact of diversification on the performance of private equity funds. A unique data set allows the exact evaluation of diversification across the dimensions financing stages, industries, and countries. Very different levels of diversification can be observed across sample funds. While some funds are highly specialized others are highly diversified. The empirical results show that the rate of return of private equity funds declines with diversification across financing stages, but increases with diversification across industries. Accordingly, the fraction of portfolio companies which have a negative return or return nothing at all, increase with diversification across financing stages. Diversification across countries has no systematic effect on the performance of private equity funds.

Keywords: private equity, diversification, specialization, performance, rate of return, percentage of loss

JEL Classification: G11, G24, M13

Suggested Citation

Lossen, Ulrich, The Performance of Private Equity Funds: Does Diversification Matter? (June 2006). Munich Business Research Working Paper Series No. 2006-14, Available at SSRN: https://ssrn.com/abstract=916702 or http://dx.doi.org/10.2139/ssrn.916702

Ulrich Lossen (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, DE 80539
Germany

HOME PAGE: http://www.inno-tec.de

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