We would like to thank Yasuhiro Arikawa, Jean-Gabriel Cousin, Douglas Cumming, Eric De Bodt, Michel Levasseur, Hideaki Miyajima, Mark Kamstra, Piet Sercu, Laurent Vilanova, Peter Wirtz and the anonymous referee for their comments, as well as participants of the European Financial Management Symposium 2010 Entrepreneurial Finance & Venture Capital Markets and the seminar and conference participants of the Lille School of Management Research Center, the KUL-LSM Finance Workshop, the Waseda University Finance and the University of Lyon. All remaining errors are our responsibility.
International Capital Flows into the European Private Equity Market
Article first published online: 3 MAY 2011
© 2011 Blackwell Publishing Ltd
European Financial Management
How to Cite
Imad’Eddine, G. and Schwienbacher, A. (2011), International Capital Flows into the European Private Equity Market. European Financial Management. doi: 10.1111/j.1468-036X.2011.00604.x
- Article first published online: 3 MAY 2011
- private equity;
- international capital flows;
- fund management
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.