The Geography of Private Equity
Abstract
This paper explores the impact of geographic proximity on the performance of private equity funds by focusing on general partners that invest outside the developed world. I find that nearby funds outperform distant funds by 8.49 percent per annum (IRR). The outperformance of nearby funds is pervasive across most investment regions, fund types, and vintage years, and also manifest in investment multiples and public market equivalents. Industry and geographical specialization sharpen the effects of the local informational advantage. Distant funds are able to compensate for their geographical disadvantage by leveraging on financial, technical, and management expertise. On balance, the findings suggest that geographically proximate general partners enhance performance by leveraging on local information networks to source for and exit from deals.