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Channel: The Harvard Law School Forum on Corporate Governance and Financial Regulation » Ludovic Phalippou
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There Is Something Special about Large Investors

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Editor's Note: The following post comes to us from Marco Da Rin of the Department of Finance at Tilburg University and Ludovic Phalippou of Saïd Business School, University of Oxford.

It has been argued that the best private equity partnerships do not increase fund size or fees to market-clearing levels. Instead they have rationed access to their funds to favor their most prestigious investors (e.g. Ivy League university endowments). Further, industry observers (e.g. Swensen (2000)) have often argued that endowments are better equipped to assess and evaluate emerging alternative investments, such as private equity, in which asymmetric information problems are especially severe. Lerner, Schoar, and Wongsunwai (2007) document that improved access as well as experience of investing in the private equity sector led endowments to outperform other institutional investors substantially during the 1990s. However, private equity is no longer an emerging, unfamiliar asset class, and the distribution of private equity fund returns has also changed over time. In particular, venture capital returns fell dramatically after the technology bust of the early 2000s.

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