Picking Partners: Manager Selection in Private Equity

Abstract

We study the selection of private equity managers (GPs) for over 100,000 capital commitments between 1990 and 2019 by global institutional investors (LPs) choosing from a plausible contemporaneous opportunity set. LPs have large propensities to select first-time or young GPs without a performance history, in addition to chasing 4th quartile managers. LPs also have tendency to follow their peers’ investment decisions, to reinvest in the same GP, and to invest in GPs domiciled in the same state/country. These selection criteria, however, do not provide information material for future performance, and in the case of first-time GPs result in lower future performance.