Working Paper: NBER ID: w19300
Authors: Lily Fang; Victoria Ivashina; Josh Lerner
Abstract: Bank-affiliated private equity groups account for 30% of all private equity investments. Their market share is highest during peaks of the private equity market, when the parent banks arrange more debt financing for in-house transactions yet have the lowest exposure to debt. Using financing terms and ex-post performance, we show that overall banks do not make superior equity investments to those of standalone private equity groups. Instead, they appear to expand their private equity engagement to take advantage of the credit market booms while capturing private benefits from cross-selling of other banking services.
Keywords: Private Equity; Banking; Investment Performance
JEL Codes: G0; G21; G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank-affiliated private equity groups (G23) | superior equity investments (G12) |
| favorable credit market conditions (G21) | banks' private equity engagement (G24) |
| bank-affiliated deals (G21) | worse financing terms and ex-post outcomes (G32) |
| parent-financed deals (G32) | better financing terms (G32) |
| banks' position in the credit market (G21) | advantageous financing terms (G32) |
| banks' involvement as lenders (G21) | better financing terms (G32) |
| timing of credit market conditions (E44) | banks' involvement in private equity (G21) |