international capital flows into the european private equity.pdf

International Capital Flows into the European Private Equity Market Gael Imad’Eddine* LSM Univ. cath. Louvain Univ. Lille NDF Armin Schwienbacher ** LSM Univ. cath. Louvain Univ. Amsterdam Business School Abstract: In this paper, we explore the relationship between institutional investors and funds managers, a relatively little studied field in private equity. We study this relationship within the context of international investment flows. We address the following question: When building risk-return exposure to European private companies, which US limited partners (LPs) are more likely to invest in US funds investing in European targets as opposed to in European funds investing locally? We build our research using two-level analysis. We first look at which US LPs are more likely to invest in funds focusing on Europe (regardless of whether a US or European fund) to identify the active global players. And second, using only the subsample of LPs investing in Europe-focused funds, we study which types of LPs are more likely to provide capital to European funds investing locally as opposed to US funds with a European focus. We find that LPs affiliated to institutions with facilities in Europe, such as banks and insurance companies, are more prone to invest directly in European funds. This is consistent with the transaction cost hypothesis whereby LPs may benefit from lower costs to access valuable information to screen European funds. We also find that pension