TY - JOUR
T1 - Adverse selection and the performance of private equity co-investments
AU - Braun, Reiner
AU - Jenkinson, Tim
AU - Schemmerl, Christoph
N1 - Publisher Copyright:
© 2019
PY - 2020/4
Y1 - 2020/4
N2 - Investors increasingly look for private equity managers to provide opportunities for co-investing outside the fund structure, thereby saving fees and carried interest payments. In this paper, we use a large sample of buyout and venture capital co-investments to test how such deals compare with the remaining fund investments. In contrast to Fang, Ivashina, and Lerner (2015), we find no evidence of adverse selection. Gross return distributions of co-investments and other deals are similar. Co-investments generally have lower costs to investors. We simulate net returns to investors and demonstrate how reasonably sized portfolios of co-investments significantly outperform fund returns.
AB - Investors increasingly look for private equity managers to provide opportunities for co-investing outside the fund structure, thereby saving fees and carried interest payments. In this paper, we use a large sample of buyout and venture capital co-investments to test how such deals compare with the remaining fund investments. In contrast to Fang, Ivashina, and Lerner (2015), we find no evidence of adverse selection. Gross return distributions of co-investments and other deals are similar. Co-investments generally have lower costs to investors. We simulate net returns to investors and demonstrate how reasonably sized portfolios of co-investments significantly outperform fund returns.
KW - Adverse selection
KW - Co-investment
KW - Financial intermediation
KW - Private equity
UR - http://www.scopus.com/inward/record.url?scp=85072597773&partnerID=8YFLogxK
U2 - 10.1016/j.jfineco.2019.01.009
DO - 10.1016/j.jfineco.2019.01.009
M3 - Article
AN - SCOPUS:85072597773
SN - 0304-405X
VL - 136
SP - 44
EP - 62
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 1
ER -