Fund ownership, wealth, and risk-taking: Evidence on private equity managers

Carsten Bienz, Karin Thorburn () and Uwe Walz

Journal of Financial Intermediation, 2023, vol. 54, issue C

Abstract: Private equity (PE) managers are required to invest their own money in the funds they manage. We examine the incentive effects of this ownership on the delegated acquisition decision. A simple model shows that PE managers select less risky firms and use more debt, the higher their ownership. We test these predictions for a sample of Norwegian PE funds, using managers’ wealth to capture their relative risk aversion. As predicted, the target company’s cash-flow risk decreases and leverage increases with the manager’s ownership scaled by wealth. Moreover, the overall portfolio risk decreases with ownership, mitigating widespread concerns about excessive risk-taking.

Keywords: Private equity; Incentives; Fund manager; Ownership; Risk-taking; Wealth (search for similar items in EconPapers)
JEL-codes: D86 G12 G31 G32 G34 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:54:y:2023:i:c:s1042957323000086

DOI: 10.1016/j.jfi.2023.101025

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