Analyzing Investor Rationale: A Comparative Study of Diversified and Specialized Private Equity Firms Fundraising and Performance in Response to Public Market Conditions

Abstract

This paper analyzes sector-specific and overall public market performance on private equity fundraising activities and performance for diversified and specialized funds. Using a series of linear regressions, we investigate the market drivers behind the likelihood of follow-on fundraising events, the time spent fundraising, fundraising success, GP capital calling activities, and the impact of timing the markets on fund performance. Our results show that stronger overall public market performance reduces the time between subsequent funds within the same fund series with a greater impact on diversified funds. IT specialized funds are found to be the only sector focus that was impacted by sector-specific market outperformance. We further find that vintage year timing with upward trending markets positively impacts future performance. Additionally, IT focused funds show a positive relationship in future performance with vintage years occurring during strong IT specific public market movement. Overall, we find that general market conditions impact fundraising and performance of both diversified and specialized funds showing investors and GPs’ activities are not reactive to short-term market movements.