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Are LPs Funds of Funds? Relationship Building in the Private Equity Industry _______________ Massimo MASSA Hong ZHANG Xiaolan ZHOU 2014/57/FIN Are LPs Funds of Funds? Relationship Building in the Private Equity Industry Massimo Massa* Hong Zhang** Xiolan Zhou*** This Draft: October 2014 We thank Jean-Noel Barrot, Hui Chen, Yael Hochberg, Christopher Malloy, Abraham Ravid, Jianfeng Yu, and participants at the 2014 Western Finance Association Annual Conference for their helpful comments. * The Rothschild Chaired Professor of Banking, Co-Director of the Hoffmann Research Fund, Professor of Finance at INSEAD, 1 Ayer Rajah Avenue, 138676 Singapore. Email: massimo.massa@ ** Associate Professor of Finance at PBC School of Finance, Tsinghua University, 43 Chengfu Road, Haidian District, Beijing, PR China 100083 . Email: zhangh@ *** Associate Professor at School of Economics, Shanghai University of Finance and Economics, Guoding Road 777, PR China. Email: zhou.xiaolan@ A Working Paper is the author’s intellectual property. It is intended as a means to promote research to interested readers. Its content should not be copied or hosted on any server without written permission from publications.fb@ Find more INSEAD papers at /facultyresearch/research/search_papers.cfm Abstract We investigate an informal yet important mechanism in the private equity industry that helps to reduce uncertainty: relationship building. Based on a large sample of private equity funds over the 1980-2010 period, we find that the general