Giants at the Gate: On the Cross-Section of Private Equity Investment Returns

Florencio Lopez-de-Silanes (), Ludovic Phalippou and Oliver Gottschalg
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Oliver Gottschalg: HEC Paris

Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We examine the determinants of private equity returns using a newly constructed database of 7,500investments worldwide over forty years. The median investment IRR (PME) is 21% (1.3), gross offees. One in ten investments goes bankrupt, whereas one in four has an IRR above 50%. Only one ineight investments is held for less than 2 years, but such investments have the highest returns. Thescale of private equity firms is a significant driver of returns: investments held at times of a highnumber of simultaneous investments underperform substantially. The median IRR is 36% in thelowest scale decile and 16% in the highest. Results survive robustness tests. Diseconomies of scaleare linked to firm structure: independent firms, less hierarchical firms, and those with managers ofsimilar professional backgrounds exhibit smaller diseconomies of scale.

Keywords: private equity; diseconomies of scale (search for similar items in EconPapers)
JEL-codes: G24 (search for similar items in EconPapers)
Date: 2011-02-11
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Giants at the Gate: On the Cross-section of Private Equity Investment Returns (2010)
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