Analysis of the relationship between size and returns in private equity
Name
921182547-MIT.pdf
Description
Full printable version
Size
7.38 MB
Format
Adobe PDF
Checksum (MD5)
db7adce3213644b2c0443062f1de7121
Author(s)
Limal, Emmanuel (Emmanuel Arnaud Michel)
Advisor(s)
Mark Kritzman.
Date Issued
2015
Publisher
Massachusetts Institute of Technology
Abstract
We study in this paper the relationship between the size of funds and the related performance in the Private Equity industry. We show that for top quartile funds, an increase in size is associated with a decrease in performance. Furthermore, we show that this increase in fund size is also associated with an increase in performance of the lowest performing funds, leading to a less volatile spectrum of returns for larger fund sizes. Following this first analysis, we use System Dynamics techniques to visually represent the industry and hypothesize that these decrease in returns are led by manager's lack of focus, the increased competition for these deals and an increase in risk-taking. The main driver we identify as responsible for this increase in fund size over the past decade is due to the increase in management fees in absolute value. Finally, we discuss potential strategies enabling fund managers to balance this desire to increase management fees whilst protecting the high returns sought by Limited Partners investing in their funds.
Description
Thesis: S.M. in Management Research, Massachusetts Institute of Technology, Sloan School of Management, 2015.
Cataloged from PDF version of thesis.
Includes bibliographical references (pages 40-41).
Subjects
Sloan School of Management.
MIT Department
Sloan School of Management
Terms of Use
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