Portfolio Management in Private Equity

Gregory W. Brown, Celine Yue Fei and David Robinson

No 31664, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: General Partners (GPs) in private equity face a trade-off between focusing their skills and effort on fewer investments to earn higher returns, or investing more broadly to reduce risk through diversification. Using a novel, deal-level dataset of 5,925 global investments from 1999 to 2016, we show that these portfolio considerations are important for understanding fund-level private equity returns. The largest investments in PE funds typically have the lowest returns on average, but are also the least risky. Returns and risk are both increasing in industry or geographic concentration. And while GP-specific return variation (e.g., skill) only accounts for 4%-6% of the total return variation of a typical investment, it accounts for around 40% of the return variation at the fund level. These findings show that GPs use portfolio construction, and not just deal selection, to seek risk-adjusted fund-level returns.

JEL-codes: G10 G11 G2 G20 G24 (search for similar items in EconPapers)
Date: 2023-09
New Economics Papers: this item is included in nep-ifn
Note: CF PR
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.nber.org/papers/w31664.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:31664

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w31664
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().