Private Equity Research Articles

Does the disclosure of ESG information by private equity firms impact the success of their fundraising efforts?

This study examines the impact of private equity fund managers' (GPs') ESG disclosure on fundraising. To this end, a sample of global private equity and venture capital funds that completed fundraising between 2020 and 2022 is employed. Our findings indicate that an increase in ESG disclosure by GPs is associated with an increase in fundraising. This indicates that GPs' ESG disclosure diminishes information asymmetry and has a favorable impact on fundraising. Conversely, the level of ESG disclosure among limited partners (LPs) has no significant impact on the relationship between GPs' ESG disclosure level and fundraising. The findings of this study have significant implications for private equity stakeholders, including GPs, given the current context of declining investment demand due to rising interest rates, recessionary concerns, poor performance and tighter regulations on private equity management. In this environment, ESG disclosure is becoming increasingly challenging for private equity firms to utilize as a fundraising strategy.

Latin America: Weak academic freedom within strong university autonomy

Abstract In Latin America, the notions of academic freedom or the freedom of science have not had the overarching influence in defining the prerogatives of scholars and the university that we see them exerting over the experiences of Western Europe and the Anglosphere. The governing notion, from whence all other freedoms emerge, is that of university autonomy. In Latin America, university autonomy evolved over the twentieth century as a protection of the university against the encroachment of governments – often authoritarian or outright dictatorial – so they could carry out their missions as they defined them. In Latin America, the locus of what in Europe is understood as scientific freedom is vested in the universities, not in the professoriate. It is assumed that free universities will foster an environment of academic freedom within. The contemporary contestations of university autonomy in Latin America fit squarely into the liberal script, as they seek to make universities more responsive to policy goals in the areas of higher education quality and accountability, efficiency and productivity, expansion of public or private provision, access and equity. Often, universities and their associations have raised autonomy as an objection to these policy agendas.

Risk-Adjusted Returns of Private Equity Funds: A New Approach

Abstract This paper introduces a new metric, α, to benchmark the performance of individual private equity funds. Our metric is substantially less sensitive to noise in fund cash flows compared to the popular public market equivalent (PME) and its generalization (GPME), while having the same aggregate pricing implications as GPME. For a large data set of fund cash flows, α estimates have much lower standard deviation across funds than does (G)PME. For buyout funds, PME and α are close, but deviate in certain subsamples. Using α increases power in regressions involving fund performance and improves performance predictability of future funds.

Connectedness and systemic risk between FinTech and traditional financial stocks: Implications for portfolio diversification

The rapid growth in FinTech is attracting significant investor attention. There are concerns that FinTech stocks may be a source of systemic risk and this has implications for the stability of the financial sector. This study uses a TVP-VAR model to estimate the dynamic connectedness between global FinTech stocks and the stocks of large US banks, regional US banks, US insurance, and global private equity. The findings reveal that FinTech and insurance stocks are net receivers of shocks while large US banks are a major source of shocks. Thus, FinTech stocks are not a source of systemic risk but can be affected by financial contagion and systemic risk originating from large US banks. The highest connectedness was observed at the onset of the COVID-19 lockdowns illustrating the dramatic impact that a health pandemic can have on systemic risk. Systemic risk also increased during the 2023 US bank panic. Connectedness has implications for constructing investment portfolios. The equally weighted, risk parity, and risk parity connectedness portfolios have similar portfolio summary statistics, but lower risk adjusted returns than the maximum Sharpe ratio portfolio which better captures the low correlation between FinTech stocks and traditional financial stocks. These results are robust across various portfolio rebalancing periods (daily, weekly, monthly).

Transformative Dynamics in Private Equity: Exploring Co-investment, ESG Integration and Digitalization Strategies

This paper delves into the evolving landscape of private equity (PE) financing, particularly in the context of the real estate and project development sectors amidst global economic fluctuations and geopolitical uncertainties. With traditional debt financing losing its sheen, the study focuses on the burgeoning role of PE, especially co-investment funds, as a viable financial alternative. Utilizing a rich dataset from reputable sources such as Morningstar, Pitchbook, and the European Central Bank, along with other pertinent studies, the paper presents a nuanced analysis of the declining PE transaction activity in 2023. It highlights how this downturn has catalyzed the adoption of innovative strategies, including the rise of “continuation vehicles” and the increasing significance of co-investments. Moreover, the research offers an insightful examination of the German SME sector, showcasing how PE can be a transformative force. It particularly emphasizes the incorporation of ESG (environmental, social, and governance) considerations and the advancement of digitalization within these enterprises. The study employs a mixed-methods approach, blending qualitative insights with a robust collection of both primary and secondary data. It argues that PE is not merely a financial instrument but a catalyst for meaningful business evolution, enabling German SMEs to effectively respond to current market challenges and undergo essential transformations. This paper aims to contribute to the broader understanding of PE’s role in contemporary business environments, offering valuable perspectives for academics, industry practitioners, and policymakers.

Financing green innovation startups: a systematic literature review on early-stage SME funding

ABSTRACT This paper investigates the critical issue of financing early-stage green startups, examining the types of investors and finance models available, the challenges these startups face, and how the green finance ecosystem can better support early-stage investment. Utilizing a systematic literature review (SLR) methodology, we provide a comprehensive analysis of the current landscape. Our findings reveal a significant paucity of data and a bias towards well-established North American and European ecosystems, while highlighting an emerging diversity in private finance sources post-Global financial crisis (GFC), including grants, equity, and crowdfunding. Despite this, there remains a heavy reliance on public funding and a lack of evidence regarding its impact. The inherent characteristics of cleantech – high capital expenditure, long investment horizons, and disruptive nature – necessitate innovative public financing instruments and policies to reduce risk and attract private investment. Our theoretical contribution highlights the necessity for interdisciplinary research and policy collaboration to develop a holistic entrepreneurial finance (entfin) ecosystem. This approach should integrate quantitative economic and qualitative behavioural finance research to address information asymmetries and improve the green economy policy mix. Such a framework will support public-private co-financing, enhance stakeholder engagement, and provide evidence for policy decisions, facilitating more rapid commercialization of cleantech innovations for environmental sustainability.

The sectoral consequences of private equity acquisitions: Spillovers in wages and employment

The sectoral consequences of private equity acquisitions: Spillovers in wages and employment

Health in the age of asset manager capitalism.

A relatively small number of for-profit asset managers-financial intermediaries that invest capital on behalf of other investors-have emerged in recent decades to become some of the most influential commercial actors in the global political economy. Despite their important role in society, asset managers have received little attention from a public health perspective. In this article, we aimed to propose a conceptual framework of potential pathways and mechanisms through which asset managers may influence health and equity. The framework included asset class-specific pathways related to investments in publicly listed corporate equity, private equity, 'real assets' (e.g. housing, hospitals, farmland) and commodities. The framework also included more generalized pathways, focusing on ways in which the large and highly concentrated asset management sector can drive economic inequities, influence policy and political decision-making and shape the global 'development' agenda. We argue that measures challenging so-called 'asset manager capitalism', such as promoting and protecting the public ownership of companies and assets in essential sectors, are imperative to address the commercial determinants of ill health and inequity.

How Private Equity Funds can Spur New Investment in the Global SAM and MOGI Sectors (Part-2)

No Abstract.

Charity begins at the office: issuing cheap stock and stock options to employees and insiders before going public

PurposePress reports have indicated that firms frequently underprice restricted stock and employee stock options. I test for underpricing of stock and options.Design/methodology/approachI examined a sample of 5,333 private firm stock and option issuances between 1985 and 2017. I tested for underpricing using two approaches: assuming investors have no special market-timing ability and assuming instead they have perfect market-timing ability.FindingsI find evidence of widespread stock and option underpricing by private firms before they go public reflecting large discounts that exceed reasonable compensation for lack of marketability. Unreported underpricing is more frequent in the last pre-IPO private equity transactions that offer the last opportunity to give such discounts before the stock is publicly traded, but the discounts are greater in the earlier pre-IPO transactions where unreported discounts are presumably tougher for the SEC to detect. Underpricing is still detected even when the actual DLOMs are tested against a benchmark that assumes investors have perfect market-timing ability.Research limitations/implicationsFirms frequently underprice restricted stock and employee stock options. Firms tend to underprice stock options more frequently than restricted stock, but restricted stock tends to be priced at deeper discounts when recipients are assumed not to have any special market-timing ability.Practical implicationsPrivate firms issue restricted stock and options as incentive compensation. Lowballing the valuation transfers wealth from outside stockholders to employees/insiders. Wealth transfers take place through the issuance of equity claims to employees/insiders before firms go public. I found that more than a quarter of the DLOMs exceed the theoretical maximum by, on average, between 16% (median) and 20% (mean). This finding raises two questions worthy of investigation. First, to what extent do the frequency and magnitude of DLOMs above the theoretical maximum depend on whether a board of directors obtains an independent appraisal of a stock’s fair market value? Second, if DLOMs above the theoretical maximum are observed even when the stock is independently appraised, how do appraisers justify such large DLOMs?Social implicationsThe wealth transfers that take place through the issuance of equity claims to employees/insiders before firms go public benefit employees/insiders at the expense of outside shareholders.Originality/valueMy paper is the first to furnish evidence of widespread stock and option underpricing by private firms before they go public; demonstrate that the unreported underpricing is more frequent in the last pre-IPO private equity transactions that offer the last opportunity to give such discounts before the stock is publicly traded and show that the discounts are greater in the earlier pre-IPO transactions where unreported discounts are presumably tougher for the SEC to detect.

Shariah Contracts in Private Equity and Its Prospect for Small and Medium Enterprises (SME)

This study explores the significance of contracts in private equity applications, particularly in addressing Shariah compliance concerns inherent in traditional private equity structures. Private equity plays a crucial role in funding and nurturing SMEs, aligning with equity-based activities that are conducive to Islamic finance principles. Using a qualitative Grounded Theory approach, the study involves interviews with various stakeholders in the financial industry. Grounded theory is an iterative and inductive method that systematically analyses data to uncover patterns and themes, generating hypotheses or theories derived directly from the data. The study identifies murabahah, ijarah, mudarabah, and musharakah as suitable contracts for private equity applications. These findings illuminate opportunities for financial industry participants, particularly SMEs, to innovate and access funding through private equity avenues.

Editorial Comment on “Effect of Private Equity Ownership on Access to Outpatient Urologic Cancer Care in Medicare Recipients”

Editorial Comment on “Effect of Private Equity Ownership on Access to Outpatient Urologic Cancer Care in Medicare Recipients”

Private Equity Acquisition of Physician Practices—Looking for Ethical Guidance From Professional Societies

Private Equity Acquisition of Physician Practices—Looking for Ethical Guidance From Professional Societies

How Private Equity funds can spur new investment in the Global SAM and MOGI Sectors under various uncertainties- Part-1

While operationally most of the SAM and MOGI sectors, when developed, are lucrative, they also suffer from an array of uncertainties and disruptions. It becomes less acceptable for long term investors when the uncertainties continue to hog the market; as it is happening now. While globally, the governments are keeping away from the risky investments, the private equity investment can be a method for renewed investments in the SAM and MOGI sector, starting from exploration to the value chain investing while the fields are operational. In order to be rational to the investing as well as to protect investor interest, the governments must play an alert but flexible watchdog role.

Pathways to success: a machine learning approach to predicting investor dynamics in equity and lending crowdfunding campaigns

AbstractCrowdfunding has evolved into a formidable mechanism for collective financing, challenging traditional funding sources such as bank loans, venture capital, and private equity with its global reach and versatile applications across various sectors. This paper explores the complex dynamics of crowdfunding platforms, particularly focusing on investor behaviour and investment patterns within equity and lending campaigns in Italy. By leveraging advanced machine learning techniques, including XGBoost and LSTM networks, we develop predictive models that dynamically analyze real-time and historical data to accurately forecast the success or failure of crowdfunding campaigns. To address the existing gaps in crowdfunding analysis tools, we introduce two novel datasets—one for equity crowdfunding and another for lending. Moreover, our approach extends beyond traditional binary success metrics, proposing novel measures. The insights gained from this study could support crowdfunding strategies, significantly improving project selection and promotional tactics on platforms. By enhancing decision-making processes and providing forward-looking guidance to investors, our computational model aims to empower both campaign creators and platform administrators, ultimately improving the overall efficacy and sustainability of crowdfunding as a financing tool.

Educational capitalisation: a co-formational feminist framework for conceptualising investment in for-profit education within the racialised and gendered political economy

ABSTRACT This paper examines the processes through which education becomes valued as capital within the racialised and gendered political economy. Using the empirical case of venture capital (VC) investment in for-profit education companies, principally education technology companies and for-profit school chains, it puts forward the concept of educational capitalisation. We conceptualise it as the set of uneven processes, practices, and socio-spatial relationships through which value is extracted from educational processes and practices, and, thus, education is valued in terms of expected monetary return on investment. While our conceptualisation focuses on VC investment, this framework could be used to outline other processes of extraction and valuation in education, including private equity, investment banking, venture philanthropy, and public-private partnerships. We conclude with a co-formational feminist framework for guiding future research, policymaking, and educational decision making that considers the financial, socio-technological, learning & teaching, and political-legal aspects of educational capitalisation, with ethical considerations embedded within each of these domains.

The Impact of Private Equity on Corporate Innovation

Private equity plays a crucial role in today's economic environment and has a profound impact on corporate innovation. This study aims to explore in depth how private equity investment affects corporate innovation and to reveal the mechanisms behind this impact. By constructing a linear regression model, the study finds that private equity investment has a positive effect on firms' R&D investment and patent output, thus proving that private equity investment promotes corporate innovation. The empirical evidence in this paper reveals the investment logic of private equity investment, provides an analysis of the process of the role of private equity investment in influencing corporate innovation performance, and enriches the research on the factors affecting corporate innovation performance. The findings of this paper are of practical significance in guiding private equity investment to enhance corporate innovation.

A Study of the Impact of Private Equity Funds on the Value of SMEs

Private equity (PE), a type of equity investment in unlisted companies, has gradually become more popular in the domestic market as a result of China's economy's rapid development. According to certain experts, private equity significantly affects businesses. Less research has been done, though, on how private equity funds affect business value. The focus of this article is therefore the impact of PE on the valuation of SMEs. Based on the GEM data from 2019 to 2022, the empirical analysis of the results by means of multi-linear regression model indicates that the value of private equity firms is higher than that of non-private equity investors, and the lower the balance sheet ratio, the higher the return on net assets ratio, or the higher the research and development intensity of the enterprises participated by private equity institutions, the more conducive it is to increase the value of small and medium-sized enterprises.

Study of the Impact of Private Equity Involvement on Corporate IPO Decisions

At present, private equity investment has become a relatively popular option for financing enterprises of unlisted companies. This paper conducts a case study on the changes in profitability, development, and technological innovation ability of NAIXUE before and after its listing. Tiantu invests in this famous listed catering company to explore the issue of how private equity intervention affects the decision-making of enterprises to go public. The single-case study found that personal equity intervention can help enterprises accelerate the speed of financing, improve their soft power, profitability, and competitiveness, and accelerate the listing process. They proposed a profitable way for private equity firms to continue to hold shares after listing. Under its unique operation mode and management ability, private equity supports enterprises in management, technology, resources, and other aspects. Resource integration helps solve the difficulties in developing enterprises before going public so that they can concentrate on technological innovation.

Private Equity Acquisitions Of Hospices Are Increasing; Ownership Remains Opaque.

Private equity ownership across the US health care system is rapidly increasing, yet ownership structures are complex and opaque. We used an economic data set tracking mergers and acquisitions linked to Medicare data to identify private equity hospice acquisitions. Given the influence of for-profit ownership on hospice quality, transparent data on private equity investment are fundamental to ensuring high-quality end-of-life care.