Private equity firm founders tend to center a shop’s investment strategy and operations on their own particular background and expertise, which may last long after they’ve departed, new research shows.
Researchers from Harvard University, Harvard Business School and the University of Chicago analyzed 79 private equity firms and grouped the firms’ founders into three categories based on their work and academic history: finance, private equity and operational.
Finance founders, those with a background in investment banking or previously a CFO, tend to build firms that favor financial engineering and back incumbent management during a takeover. Private equity founders, those that come from a different private equity or venture capital firm, build firms with the strongest value-add or operational focus and also tend to replace target company management post-acquisition. Operational founders, those with consulting or industry experience, fall in between the two categories.
The results “seem to indicate that career histories of firm founders have persistent effects on private equity firm strategy,” the researchers said.
Over the past few years, buyout firms have trumpeted their value-add capabilities and become less vocal about their financial engineering strategies. The results could be used by LPs to help weigh GPs’ claims.