Private Equity Fund Management Team Composition and Fund Performance

Abstract

This paper documents variation in the human capital of private equity fund managers using a dataset of the educational and work histories of private equity fund managers. It then examines whether the human capital composition of private equity fund management teams can explain fund performance. A number of novel empirical patterns are uncovered. Both buyout and venture funds with more experienced management teams perform better. Venture capital funds perform better when a greater fraction of their managers have engineering degrees and when managers sit on the boards of a greater number of portfolio companies in the fund. First time venture capital funds perform better when a greater fraction of managers have entrepreneurial backgrounds, but this is not true for follow-on venture capital funds. Fund management team changes in venture funds are associated with better fund performance, while changes in buyout fund management teams are associated with worse performance. The findings suggest value-added activities of fund managers are much more important for the success of venture capital funds than for buyout funds.

Keywords: Private Equity, Fund Management, Fund Performance

JEL Classification: G24, G23