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New research on private equity from Harvard Business School faculty on issues including the economics of the private equity partnership, how to replicate private equity with value investing, and the pros and cons of recruiting friends and family members as investors.
Page 1 of 13 Results

Private Equity and COVID-19

by Paul A. Gompers, Steven N. Kaplan, and Vladimir Mukharlyamov

Private equity investors are seeking new investments despite the pandemic. This study shows they are prioritizing revenue growth for value creation, giving larger equity stakes to management teams, and targeting somewhat lower returns.

Long-Run Returns to Impact Investing in Emerging Markets and Developing Economies

by Shawn Cole, Martin Melecky, Florian Mölders, and Tristan Reed

Examination of every equity investment made by the International Finance Corporation, one of the largest and longest-operating impact investors, shows this portfolio has outperformed the S&P 500 by 15 percent.

Do Private Equity Buyouts Get a Bad Rap?

by Michael Blanding

Elizabeth Warren calls private equity buyouts "Wall Street looting," but a recent study by Josh Lerner and colleagues shows they have both positive and negative impacts. Open for comment; 0 Comments.

The Economic Effects of Private Equity Buyouts

by Steven J. Davis, John Haltiwanger, Kyle Handley, Ben Lipsius, Josh Lerner, and Javier Miranda

Private equity buyouts are a major financial enterprise that critics see as dominated by rent-seeking activities with little in the way of societal benefits. This study of 6,000 US buyouts between 1980 and 2013 finds that the real side effects of buyouts on target firms and their workers vary greatly by deal type and market conditions.

Investing Outside the Box: Evidence from Alternative Vehicles in Private Capital

by Josh Lerner, Jason Mao, Antoinette Schoar, and Nan R. Zhang

Private equity vehicles that differ from the traditional structure have become a major portion of investors’ portfolios, especially over the past decade. This study identifies differences in performance across limited and general partners participating in such vehicles, as well as across the two broad classes of alternative vehicles.

Private Equity, Jobs, and Productivity: Reply to Ayash and Rastad

by Steven J. Davis, John Haltiwanger, Kyle Handley, Ron S. Jarmin, Josh Lerner, and Javier Miranda

In 2014, the authors published an influential analysis of private equity buyouts in the American Economic Review. Recently, economists Brian Ayash and Mahdi Rastad have challenged the accuracy of those findings. This new paper responds point by point to their critique, contending that it reflects a misunderstanding of the data and methodology behind the original study.

Should Industry Competitors Cooperate More to Solve World Problems?

by Sean Silverthorne

George Serafeim has a theory that if industry competitors collaborated more, big world problems could start to be addressed. Is that even possible in a market economy? Open for comment; 0 Comments.

Private Equity and Financial Fragility During the Crisis

by Shai Bernstein, Josh Lerner, and Filippo Mezzanotti

Examining the activity of almost 500 private equity-backed companies during the 2008 financial crisis, this study finds that during a time in which capital formation dropped dramatically, PE-backed companies invested more aggressively than peer companies did. Results do not support the hypothesis that private equity contributed to the fragility of the economy during the recent financial crisis.

Pay Now or Pay Later? The Economics within the Private Equity Partnership

by Victoria Ivashina and Josh Lerner

Partnerships are essential to the professional service and investment sectors. Yet the partnership structure raises issues including intergenerational continuity. This study of more than 700 private equity partnerships finds 1) the allocation of fund economics is typically weighted toward the founders of the firms, 2) the distributions of carried interest and ownership substantially affect the stability of the partnership, and 3) partners’ departures have a negative effect on private equity groups’ ability to raise additional funds.

Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting

by Erik Stafford

This paper studies the asset selection of private equity investors and the risk and return properties of passive portfolios with similarly selected investments in publicly traded securities. Results indicate that sophisticated institutional investors appear to significantly overpay for the portfolio management services associated with private equity investments.

When Founders Recruit Friends and Family as Investors

by Noam Wasserman

In his new book, The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup, HBS Associate Professor Noam Wasserman tells readers how to anticipate, avoid, and, if necessary, recover from the landmines that can destroy a nascent company before it has the chance to thrive. In this excerpt, he discusses the pros and cons of recruiting friends and family members as investors. Open for comment; 0 Comments.

Private Equity and Industry Performance

by Shai Bernstein, Josh Lerner, Morten Sørensen & Per Strömberg

In response to the global financial crisis that began in 2007, governments worldwide are rethinking their approach to regulating financial institutions. Among the financial institutions that have fallen under the gaze of regulators have been private equity (PE) funds. There are many open questions regarding the economic impact of PE funds, many of which cannot be definitively answered until the aftermath of the buyout boom of the mid-2000s can be fully assessed. HBS professor Josh Lerner and coauthors address one of these open questions, by examining the impact of PE investments across 20 industries in 26 major nations between 1991 and 2007. In particular, they look at the relationship between the presence of PE investments and the growth rates of productivity, employment, and capital formation. Key concepts include: It is still too early to assess the consequences of the economic conditions in 2008 and 2009, a period where the decrease of investment and absolute volume of distressed private equity-backed assets was far greater than in earlier cycles. Despite this caveat, it appears that: PE investments are associated with faster growth. There is little evidence that economic fluctuations are exacerbated by the presence of PE investments. In industries with PE investments, there are few significant differences between industries with a low and high level of PE activity. Activity in industries with PE backing appears to be no more volatile in the face of industry cycles than in other industries, and sometimes less so. The reduced volatility is particularly apparent in employment. These patterns continue to hold when the focus is on the impact of private equity in continental Europe, where concerns about these investments have been most often expressed. Closed for comment; 0 Comments.

How do Private Equity Fees Vary Across Public Pensions?

by Juliane Begenau and Emil Siriwardane

As state and local defined-benefit pensions increasingly shift capital from traditional asset classes to private-market investment vehicles, this analysis shows that public pensions investing in the same private-market fund can experience very different returns.