Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2011-02-11
Number: 11-035/2/DSF12
Author-Name: Florencio Lopez-de-Silanes
Author-Workplace-Name: University of Amsterdam, EDHEC Business School, NBER
Author-Name: Ludovic Phalippou
Author-Workplace-Name: University of Amsterdam
Author-Name: Oliver Gottschalg
Author-Workplace-Name: HEC Paris
Title: Giants at the Gate: On the Cross-Section of Private Equity Investment Returns
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.
Classification-JEL: G24
Keywords: private equity, diseconomies of scale
File-Url: https://papers.tinbergen.nl/11035.pdf
File-Format: application/pdf
File-Size: 657744 bytes
Handle: RePEc:tin:wpaper:20110035