Publication Type
Journal Article
Version
Publisher’s Version
Publication Date
2-2023
Abstract
This article analyzes the effect of geographical diversification on global private equity (PE) fund returns. We find that there is a negative correlation between geographical diversification and PE fund returns. To establish the causality between geographical diversification and PE fund returns, we employ an instrumental variable analysis where the instrument used is the stock market capitalization of the host country where the PE fund is based. Our results apply to Net IRR, TVPI and DPI as dependent variables used to proxy for PE fund returns in the main regression model. A one standard deviation increase in geographical diversification results in an 18.8 percent reduction in PE fund returns from a Net IRR perspective in the main regression model. Fund age and industry diversification mitigate the negative correlation between geographical diversification and fund returns. The relationship between geographical diversification and PE fund returns follows an inverted U shape function. Additional robustness tests further reinforce the findings.
Keywords
Diversification, Private Equity, Fund Returns, Geographical, Limited Attention, Multivariate Regression
Discipline
Corporate Finance | Finance | Finance and Financial Management
Research Areas
Finance
Publication
Journal of Investing
First Page
1
Last Page
19
ISSN
1068-0896
Publisher
Institutional Investor Inc.
Embargo Period
12-18-2022
Citation
ONG, Victor.
Impact of geographical diversification and limited attention on private equity fund returns. (2023). Journal of Investing. 1-19.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7116
Copyright Owner and License
Author
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
External URL
https://joi.pm-research.com/content/early/2022/12/08/joi.2022.1.248