The Performance of Private Equity Funds: Does Diversification Matter?

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The Performance of Private Equity Funds: Does Diversification Matter?

Author Info

Ulrich Lossen (Munich School of Management, Institute for Innovation Research, Technology Management and Entrepreneurship, lossen@bwl.uni-muenchen.de)

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.

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Paper provided by SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Papers with number 192.

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Date of creation: Jun 2006
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Handle: RePEc:trf:wpaper:192

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-01-23 (All new papers)

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