Diversification in Private Equity Funds: On Knowledge-sharing, Risk-aversion and Limited-attention

M. Humphery-Jenner

Research output: Working paperDiscussion paperOther research output

Abstract

This paper examines diversification as a source of value creation and destruction in private equity. The literature has focused on the `diversification discount' in corporations. It has not analyzed diversification in PE-funds, where diversification might increase value by ameliorating managerial risk aversion and by facilitating knowledge sharing. Thus, I examine a sample of 1505 PE-funds to show that industry and geographic diversification increases PE-fund returns on average, this is likely due to knowledge-sharing/learning, and is not due to mere risk-reduction or endogeneity. Diversification can also destroy value if it spreads staff too thinly across industries/regions or is motivated by risk-aversion over performance bonuses.
Original languageEnglish
Place of PublicationTilburg
PublisherEconomics
Volume2011-046
Publication statusPublished - 2011

Publication series

NameCentER Discussion Paper
Volume2011-046

Keywords

  • Diversification
  • Private Equity
  • Venture Capital

Fingerprint Dive into the research topics of 'Diversification in Private Equity Funds: On Knowledge-sharing, Risk-aversion and Limited-attention'. Together they form a unique fingerprint.

Cite this