Research

Beyond Fees: Co-Investment and the Design of Private Equity Relationships (2025, Working Paper)

Private equity funds sometimes allow limited partners to directly invest alongside the fund in portfolio firms. These co-investments offer LPs discounted access and greater portfolio choice, imposing significant costs on GPs. This raises questions of why these deals are used instead of less complex fee structures. Furthermore, the impact of co-investment on total surplus and private investment volume is unclear. I propose a model of LP–GP investment choice in the presence of co-investments. The primary benefit of co-investment to LPs comes from the option value of downside protection it offers, increasing with the uncertainty of the PE investment. GPs benefit both from increased participation from quality LPs who would otherwise invest elsewhere, as well as increased pledgeability of LP value. Co-investment represents a Pareto improvement which complements rather than substitutes for other fee structuring methods and weakly increases the expected volume of private capital LPs are willing to deploy. I provide empirical support for many of these predictions, demonstrating that co-investments increase among LPs with exogenously greater bargaining power. Co-investments predict LP collaboration in the GP’s future funds, and LPs facing higher liquidity risk are disproportionately likely to co-invest.

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