SHOW ME THE MONEY: AN EMPIRICAL ANALYSIS OF THE IMPACT OF WOMEN AND MINORITY OWNERSHIP ON PRIVATE EQUITY FUNDRAISING PERFORMANCE

Abstract

Private equity has become favored as a haven for investors seeking to generate higher returns while improving portfolio diversification. Recent estimates suggest that private equity firms currently manage approximately $4.74 trillion in assets [1], a number that could grow to as much as $9.11 trillion by 2025 [2]. The impacts of private equity are not contained to the investors who recoup its profits but also extend to the broader economy. In the United States (US) alone, private equity accounted for 5% of the GDP in 2018 [3].

Yet, despite private equity’s popularity as a portfolio diversification mechanism, the industry itself has remained largely homogenous. The private equity industry is generally dominated by white men, particularly at the highest levels. One recent study found that 3.4% of the industry's assets are managed by women-owned firms and 3.8% are managed by minority-owned firms [4], significantly lagging both the US demographic composition and the gender and ethnic-minority population that are part of the college-educated US labor force. These figures persist despite evidence that women- and minority-owned funds’ investment performance is at least as strong as their counterparts [4, 9]. The lag in assets managed by diverse-owned firms compared to their positive return evidence points to a difference in fundraising performance between diverse-owned firms and their counterparts. Specifically, we suggest that the lack of capital managed by diverse-owned firms may be due to such firms having more difficulty raising funds than their counterparts.

In order to understand the lag in assets managed by diverse-owned firms, this thesis will examine fundraising performance in relation to diverse firm ownership. We define fundraising performance along several dimensions, including the fund’s initial target size, hard cap, fund size, both independently and in comparison to the fund’s initial target and hard cap, and the time it spent in-market. We will use these measures of fundraising performance to answer three questions: (i) What is the relationship between diverse ownership of a firm and their fundraising goals? (ii) What is the relationship between diverse ownership of a firm and their achievement of fundraising goals? (iii) What is the relationship between diverse ownership and period of time fundraising? In answering these questions, we will apply both probability density analysis and regression analysis to data from Preqin on 26,764 private equity funds across 9,978 firms to isolate the impact of diverse firm ownership on a fund’s fundraising performance.