The Performance of Private Equity Funds: Does Diversification Matter?

Ulrich Lossen

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

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 (search for similar items in EconPapers)
JEL-codes: G11 G24 M13 (search for similar items in EconPapers)
Date: 2006-06
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Citations: View citations in EconPapers (4)

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