Free DP Download 29 August 2019 - SECRETS OF PRIVATE EQUITY FUND MANAGERS: Select less risky firms and use more debt financing – evidence from Norway

Thursday, August 29, 2019

OWNERSHIP, WEALTH, AND RISK TAKING: Evidence on private equity fund managers
Carsten Bienz, Karin S. Thorburn, Uwe Walz  
CEPR DP No. 13944 | 21 August 2019

A new CEPR study by Carsten Bienz, Karin Thorburn and Uwe Walz examines the incentive effects of Norwegian private equity professionals' ownership in the funds they manage. The study shows that the greater the managers’ personal investment in the funds, the more likely they are to select less risky firms and use more debt financing. Among the findings: 

  • Firm risk decreases and leverage increases with the manager's ownership in the fund, but largely only when scaled with their wealth.  
  • The low levels of competitive balance in Serie A and the Bundesliga could have hurt efforts to challenge internationally, as these teams would not be seriously challenged on a weekly basis, which would render them unprepared to face much tougher European competition. 

The study concludes that wealth is of first order importance when designing incentive contracts requiring private equity fund managers to coinvest.

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