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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26325
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| Title: | The Investment Behavior of Buyout Funds:Theory and Evidence |
| Authors: | Ljungqvist, Alexander
Richardson, Matthew
Wolfenzon, Daniel |
| Keywords: | Private equity
Buyout funds
Alternative investments
Fund management |
| Issue Date: | 12-Jun-2007 |
| Series/Report no.: | FIN-07-020 |
| Abstract: | This paper analyzes the determinants of buyout funds’ investment
decisions. In a model in which the supply of capital is
‘sticky’ in the short run, we link the timing of
funds’ investment decisions, their risk-taking behavior, and the
returns they subsequently earn on their buyouts to changes in the demand
for private equity, conditions in the credit market, and funds’
ability to influence their perceived talent in the market. Using a
proprietary dataset of 207 buyout funds that invested in 2,274 buyout
targets over the last two decades, we then investigate the implications
of the model. Our dataset contains precisely dated cash inflows and
outflows in every portfolio company, links every buyout target to an
identifiable buyout fund, and is free from reporting and survivor
biases. Thus, we are able to characterize every buyout fund’s
precise investment choices. Our empirical findings are consistent with
the model. First, established funds accelerate their investment flows
and earn higher returns when investment opportunities improve,
competition for deal flow eases, and credit market conditions loosen.
Second, the investment behavior of first-time funds is less sensitive to
market conditions. Third, younger funds invest in riskier buyouts, in an
effort to establish a track record. Fourth, following periods of good
performance, funds become more conservative, and this effect is stronger
for younger funds. |
| URI: | http://hdl.handle.net/2451/26325 |
| Appears in Collections: | Finance Working Papers
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