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Style Drift in Private Equity

Authors

  • Douglas Cumming,

    1. The authors are, respectively, Associate Professor and Ontario Research Chair, York University Schulich School of Business; Managing Director, Wilshire Private Markets Group (and Visting Fellow, Australian National University); and Associate Professor, Université catholique de Louvain and University of Amsterdam Business School. They are grateful to the EVCA for their helpful feedback. They also benefited from discussions with Ulrich Hege, Ludovic Phalippou, Manju Puri, and Alessandro Sembenelli; and discussions with conference and seminar participants at the University of Amsterdam (2004) and the RICAFE Conference in Frankfurt (2004), the Third Corporate Finance Day in Leuven (2005), Tilburg University (2005), University of Grenoble (2005), Catholic University of Leuven (2005), and Catholic University of Louvain (2006). They also thank Peter Pope (editor) and the anonymous referee for useful comments as well as Sandra Sizer for her editorial assistance.
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  • Grant Fleming,

    1. The authors are, respectively, Associate Professor and Ontario Research Chair, York University Schulich School of Business; Managing Director, Wilshire Private Markets Group (and Visting Fellow, Australian National University); and Associate Professor, Université catholique de Louvain and University of Amsterdam Business School. They are grateful to the EVCA for their helpful feedback. They also benefited from discussions with Ulrich Hege, Ludovic Phalippou, Manju Puri, and Alessandro Sembenelli; and discussions with conference and seminar participants at the University of Amsterdam (2004) and the RICAFE Conference in Frankfurt (2004), the Third Corporate Finance Day in Leuven (2005), Tilburg University (2005), University of Grenoble (2005), Catholic University of Leuven (2005), and Catholic University of Louvain (2006). They also thank Peter Pope (editor) and the anonymous referee for useful comments as well as Sandra Sizer for her editorial assistance.
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  • Armin Schwienbacher

    Corresponding author
    1. The authors are, respectively, Associate Professor and Ontario Research Chair, York University Schulich School of Business; Managing Director, Wilshire Private Markets Group (and Visting Fellow, Australian National University); and Associate Professor, Université catholique de Louvain and University of Amsterdam Business School. They are grateful to the EVCA for their helpful feedback. They also benefited from discussions with Ulrich Hege, Ludovic Phalippou, Manju Puri, and Alessandro Sembenelli; and discussions with conference and seminar participants at the University of Amsterdam (2004) and the RICAFE Conference in Frankfurt (2004), the Third Corporate Finance Day in Leuven (2005), Tilburg University (2005), University of Grenoble (2005), Catholic University of Leuven (2005), and Catholic University of Louvain (2006). They also thank Peter Pope (editor) and the anonymous referee for useful comments as well as Sandra Sizer for her editorial assistance.
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* Address for correspondence: Armin Schwienbacher, Université catholique de Louvain, Louvain School of Management, Place des Doyens 1, B-1348 Louvain-la-Neuve, Belgium.
e-mail: armin.schwienbacher@uclouvain.be

Abstract

Abstract:  We introduce the concept of style drift to private equity investment. We present theory and evidence pertaining to style drifts in terms of a fund manager's stated focus on particular stages of entrepreneurial development. We develop a model that derives conditions under which style drifts are less likely among younger fund managers. We also show ways in which changes in market conditions can affect style drifts, and differences for funds committed to early-stage investments compared to funds committed to late-stage investments. We find some evidence of a positive relation between style drifting and investment performance.

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