Research

Why do Private Equity Firms Co-invest with Their Limited Partners? (2025, Working Paper)

Private equity funds sometimes allow their limited partners to directly invest in a firm the fund is buying. This is puzzling because, when such co-investment is offered, the GP both reduces fees for the LP and allows them discretion over whether to make the additional investment. I show that co-investments are driven by an LP's bargaining power in the relationship with the GP. To establish a causal relationship, I consider the 2013 regulatory implementation of the Volcker Rule. This rule prevented banks from investing in private equity, thereby increasing the bargaining power of other LPs. I find that LPs invested in funds that were highly exposed to the loss of bank investors see a 36 basis point increase in co-investments (159% of the pre-2013 mean), compared to the control group. Overall, my results point to the use of co-investments as a device to increase flexibility in the contractual relationship between a GP and an LP. These results are relevant in light of recent regulations affecting LP-GP relationships.

Financial Intermediary Relationships and Public Market Access (2025)

How do relationships between financial intermediaries affect firms' access to public markets? While extensive research has shown the importance of bank-firm relationships in both public and private markets, the role of relationships between different types of intermediaries remains unclear. We study this question in the context of venture capital, examining how the loss of investment banking relationships due to mergers and closures affects VCs' ability to take portfolio companies public. Following the loss of an underwriter relationship, VCs experience a 16% decline in IPO probability, with these relationship disruptions explaining roughly 6% of the overall decline in IPO activity. The effect is particularly strong for smaller VCs and those managing older funds with stronger incentives to exit investments. The impact persists even when examining VCs who lost relationships with large banks that failed during the mortgage crisis, suggesting our findings reflect the causal impact of relationship loss rather than selection. Consistent with VCs gradually building new banking relationships, the effect dissipates after four years. Our findings provide novel evidence on how relationships between financial intermediaries shape capital formation, with implications for understanding how financial sector consolidation affects startups' access to public markets.

Conditionally accepted, Review of Finance