Shall Private Equity funds be specialized or non specialized to better attract institutional investors?

Details

Supervisors

Denis Knaepen

Faculty

Louvain School of Management

Degree label

Master [120] en ingénieur de gestion

Abstract

Institutional Investors invest in Private Equity to enhance their returns and increase their diversification. Using a dataset of 115 749 observations representing companies acquired by Private Equity funds and interviews with Private Equity professionals, this study brings new insights with respect to the impact specialization has on the performance of Private Equity funds. This study has three main findings. First, Private Equity professionals see specialization as absolutely necessary for any fund willing to actively involve itself in the management of its companies. In addition, specialization is as well a way for other funds to improve their performance as it is the best way to source and win good deals. Second, there is no statistical evidence showing that the degree of industry or regional specialization of a fund, determined by the Herfindahl-Hirschman Index, has a positive influence on the percentage of successful exits funds can reach. Even more, it appears that greater industry specialization would reduce the proportion of successful exit funds have. Third, it appears that bias intrinsic to any Private Equity numerical analysis, such as the survivorship bias, have a greater influence than one can think. This study supports the specialization theory by suggesting that being specialized allows funds to improve their economical performance.