Research

Why do Private Equity Firms Co-invest with Their Limited Partners? (2023, 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.

Effect of Underwriter Mergers & Closures on IPOs  (2023, Working Paper) Slides

How venture capital firms (VCs) exit their investments and the influence of underwriters on IPOs are the focus of an extensive literature. Still, whether underwriters influence how VCs exit their investments is unclear. We exploit underwriter acquisitions and closures to test whether underwriters affect startup IPOs. When a VC loses an underwriting relationship, startups’ likelihood of an IPO falls in the five years following the loss. High employee turnover following underwriter mergers likely undermines the strength of established VC-underwriter relationships, and affected VCs pay higher underwriting fees when they establish new relationships, consistent with frictions in forming new relationships.