Professor Amit Goyal will present the paper “Picking Partners: Choice in Private Equity”.
We study the selection of private equity managers (GPs) from a contemporaneous and plausible choice set by global institutional investors (LPs) delegating almost $2 trillion between 1990 and 2019. LPs focus on performance extremes, disproportionately selecting rookie GPs without a performance history and those in the fourth quartile of performance. They are also significantly more likely to engage in repeat investment in GPs with whom they have prior experience, as well as those who have received allocations from peer institutions. Post selection, rookie bets are a random draw from the distribution of post-selection IRRs, but chasing prior winners delivers higher future IRRs. Peer following is associated with higher future IRRs but repeat investment is not.