• private equity;
  • international capital flows;
  • fund management
  • F21;
  • F3;
  • G23;
  • G24


In this paper, we explore the relationship between institutional investors and funds managers, a relatively little studied field in private equity. We study this relationship within the context of international investment flows. We address the following question: When building risk-return exposure to European private companies, which US limited partners (LPs) are more likely to invest in US funds investing in European targets as opposed to in European funds investing locally? We build our research using a two-level analysis. We first look at which US LPs are more likely to invest in funds focusing on Europe (regardless of whether a US or European fund) to identify the active global players. And second, using only the subsample of LPs investing in Europe-focused funds, we study which types of LPs are more likely to provide capital to European funds investing locally as opposed to US funds with a European focus. We find that financial institutions with facilities in Europe, such as banks and insurance companies, are more prone to invest directly in European funds. This is consistent with the transaction cost hypothesis whereby LPs may benefit from lower costs to access valuable information to screen European funds. The presence of local facilities may further capture size effects. We also find that pension funds often invest directly in European funds although those funds do not possess local facilities in Europe. This may be due to their larger size that drives them to invest abroad or their increased experience in investing in private equity.