Local Overweighting And Underperformance: Evidence From Limited Partner Private Equity Investments

Institutional investors of all types exhibit substantial home-state bias when investing in Private Equity (PE) funds. This effect is particularly pronounced for public pension funds, where the local overweighting amounts to 9.7% of the private equity portfolio on average, based on 5-year rolling average benchmarks. Public pension funds' own-state investments perform significantly worse than their out-of-state investments, an average of 3-4 percentage points of net IRR per year, and those that that overweight their portfolios towards home-state investments also perform worse overall.

Provided by: National Bureau of Economic Research Topic: CXO Date Added: Jun 2011 Format: PDF

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