FIN-03-029 |
NYU Stern School of Business |
October 2003
Alexander Ljungqvist and Matthew Richardson
ABSTRACT
Using a unique dataset of private equity funds over the last two decades, this paper analyzes the
investment behavior of private equity fund managers. Based on recent theoretical advances, we
link the timing of funds’ investment and exit decisions, and the subsequent returns they earn on
their portfolio companies, to changes in the demand for private equity in a setting where the
supply of capital is ‘sticky’ in the short run. We show that existing funds accelerate their
investment flows and earn higher returns when investment opportunities improve and the
demand for capital increases. Increases in supply lead to tougher competition for deal flow, and
private equity fund managers respond by cutting their investment spending. These findings
provide complementary evidence to recent papers documenting the determinants of fund-level
performance in private equity.
Alexander Ljungqvist
Institution: Stern School of Business, New York University
Phone: (212) 998-0304
Fax: (212) 995-4233
Email: aljungqv@stern.nyu.edu
Home Page: http://www.stern.nyu.edu/~aljungqv
Matthew Richardson
Institution: Stern School of Business, New York University, 44th West 4th Street, New York, NY 10012
Fax: (212) 995-4233
Email: mrichar0@stern.nyu.edu
Homepage: http://www.stern.nyu.edu/~mrichar0
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