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Private EquityOpportunities and Risks$
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H. Kent Baker, Greg Filbeck, and Halil Kiymaz

Print publication date: 2015

Print ISBN-13: 9780199375875

Published to Oxford Scholarship Online: August 2015

DOI: 10.1093/acprof:oso/9780199375875.001.0001

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Institutional Investors and Private Equity

Institutional Investors and Private Equity

(p.311) 18 Institutional Investors and Private Equity
Private Equity

Parvez Ahmed

Oxford University Press

Private equity (PE) has experienced explosive growth over the past two decades, growing at an annual rate of 20 percent and reaching 2.4 percent of U.S. stock market capitalization. When the U.S. economy rebounded from the global financial crisis of 2007–2008, institutional investors flocked back to PE. Much of the capital invested in PE comes from wealthy private investors and institutional investors such as endowments, foundations, pension funds, and insurance companies. Successful PE investment management requires selecting an effective PE firm targeted for investment, managing that investment, and finally exiting the direct PE investment. Search costs, human capital, and liquidity time preferences influence the decision to invest in PE. The herding behavior of institutional investors with their propensity to hold large numbers of securities in their portfolio affects their choice of investment in PE. Compared to individual investors, institutional investors are better positioned to mitigate the agency costs inherent in PE.

Keywords:   private equity, institutional investors, investment management, agency costs, herding behavior

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