Intermediation in Private Equity: The Role of Placement Agents. (June 2020)

• Record Type: Journal Article
• Authors: Cain, Matthew D.; McKeon, Stephen B.; Solomon, Steven Davidoff
• Is Part Of: Journal of financial and quantitative analysis. Volume 55:Number 4(2020)
• Page Start: 1095
• Page End: 1116
• Publication Date: 2020-06
• Subjects: Finance -- Periodicals; Investments -- Mathematics -- Periodicals; 332.05
• DOI: 10.1017/S0022109019000371
• Languages: English
• ISSNs: 0022-1090

Abstract

Abstract : Intermediation in private equity involves illiquid investments, professional investors, and high information asymmetry. We use this unique setting to empirically evaluate theoretical predictions regarding intermediation. Using placement agents has become nearly ubiquitous, but agents are associated with significantly lower abnormal returns in venture and real estate funds, consistent with investor capture and influence peddling. However, returns are higher for buyout funds employing a top-tier agent and for first-time real estate and venture funds employing an agent, and are less volatile for agent-affiliated funds, consistent with a certification role. Our results suggest heterogeneous motives for intermediation in the private equity industry.