Home Bias and Local Outperformance of Limited Partner Investments: Evidence from Private Equity Fund Manager Selection

Abstract

Based on a sample of 114,098 investments committed by 12,258 limited partners into 20,473 private equity funds, we study an international home bias in fund manager selection in private equity. We find that limited partners overweigh their investments with fund managers domiciled in the same geographical region by 45% on average. The home bias in local fund manager selection holds across investor types, fund characteristics as well as market regions. Investments committed with locally domiciled fund managers are not only being overweighed, but also perform better than investments with fund managers domiciled in foreign market regions. We argue that limited partners benefit from information advantages and better fund access when selecting private equity funds within their home market region.