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Giants at the Gate: Investment Returns and Diseconomies of Scale in Private Equity

  • Florencio Lopez-de-Silanes (a1), Ludovic Phalippou (a2) and Oliver Gottschalg (a3)


We document the wide dispersion of private equity investment returns and examine performance determinants using a newly constructed database of 7,500 investments worldwide. One in 10 investments does not return any money, whereas 1 in 4 has an internal rate of return (IRR) above 50%. Quick flips are associated with the highest returns. Performance does not appear scalable: Investments held by private equity firms in periods with a high number of simultaneous investments underperform substantially. Results are consistent with the theoretical literature on organizational diseconomies linked to firm structure. Private equity firms’ actions do not appear to be mechanical or easily scalable.


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