Diversification in Private Equity Funds

On Knowledge-sharing, Risk-aversion and Limited-attention

M. Humphery-Jenner

Research output: Working paperDiscussion paperOther research output

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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

Fingerprint

Limited attention
Private equity
Diversification
Risk aversion
Knowledge sharing
Industry
Diversification discount
Staff
Geographic diversification
Endogeneity
Bonuses
Value creation
Risk reduction

Keywords

  • Diversification
  • Private Equity
  • Venture Capital

Cite this

Humphery-Jenner, M. (2011). Diversification in Private Equity Funds: On Knowledge-sharing, Risk-aversion and Limited-attention. (CentER Discussion Paper; Vol. 2011-046). Tilburg: Economics.
Humphery-Jenner, M. / Diversification in Private Equity Funds : On Knowledge-sharing, Risk-aversion and Limited-attention. Tilburg : Economics, 2011. (CentER Discussion Paper).
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Humphery-Jenner, M 2011 'Diversification in Private Equity Funds: On Knowledge-sharing, Risk-aversion and Limited-attention' CentER Discussion Paper, vol. 2011-046, Economics, Tilburg.

Diversification in Private Equity Funds : On Knowledge-sharing, Risk-aversion and Limited-attention. / Humphery-Jenner, M.

Tilburg : Economics, 2011. (CentER Discussion Paper; Vol. 2011-046).

Research output: Working paperDiscussion paperOther research output

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Humphery-Jenner M. Diversification in Private Equity Funds: On Knowledge-sharing, Risk-aversion and Limited-attention. Tilburg: Economics. 2011. (CentER Discussion Paper).