Combining Banking with Private Equity Investing
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.
We thank the Editor, Andrew Karolyi, and two anonymous referees for comments that significantly improved this paper. We also thank Viral Acharya, Oguzhan Karakas, Anna Kovner, Ron Masulis, Manju Puri, Anthony Saunders, Antoinette Schoar, Andrei Shleifer, Morten Sorensen, Per Strömberg, Greg Udell, Royce Yudkoff, and seminar audiences at the American Finance Association conference, the Coller Institute Private Equity Findings Symposium, the New York Fed/NYU Stern Conference on Financial Intermediation, Boston University, Indiana University, INSEAD, Maastricht University, Tilburg University, UCSD, the University of Mannheim, and Wharton for helpful comments. We are grateful to Anil Shivdasani and Yuhui Wang, Per Strömberg, and Oguzhan Ozbas for generously sharing data with us. Jacek Rycko, Chris Allen, and Andrew Speen provided remarkable assistance with the data collection. Harvard Business School's Division of Research provided financial support. A number of the authors has advised institutional investors in private equity funds, private equity groups, and governments designing policies relevant to private equity. All errors and omissions are our own. Send correspondence to Victoria Ivashina, Harvard Business School, Baker Library 233, Boston, MA 02163; telephone (617) 495-8018. E-mail: firstname.lastname@example.org. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.