Portfolio strategies of private equity firms

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Driven by the convergence of international financial markets, global investors are increasingly seeking alternative asset classes that offer portfolio diversification and attractive returns. Private equity, which involves equity investments in privately held companies, meets these criteria and has seen significant growth over the past three decades. It has become a crucial component in the portfolios of institutional investors, including banks, insurance companies, and pension funds. However, there is still limited understanding of private equity’s characteristics and intricacies. As a result, practitioners are turning to researchers for systematic information to inform their investment decisions. In this dissertation, Ulrich Lossen addresses this information gap by employing advanced econometric methods on a unique dataset he created for this study. His analysis explores the portfolio strategy choices of private equity firms and how these choices affect fund performance. Lossen's research unfolds in three steps: first, he theoretically models the trade-off between diversification and specialization in private equity funds. Next, he investigates how external factors influence private equity firms' decisions to diversify across various dimensions, including financing stages, industries, and geographic regions. Finally, he assesses the impact of this diversification on the performance of private equity funds.