The Performance of Private Equity Funds: Does Diversification Matter?

Lossen, Ulrich (June 2006): The Performance of Private Equity Funds: Does Diversification Matter? SFB/TR 15 Discussion Paper No. 192

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.

• Item Type: Paper
• Keywords: private equity, diversification, specialization, performance, rate of return, percentage of loss
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > B2 - Wagniskapitalfinanzierte Unternehmen in Deutschland - Finanzierungskontrakte, Organisationsstrukturen und Eigentumsrechte
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: G11, G24, M13
• Language: English