Why do some fund managers outperform others? I construct a novel dataset to study this question in private equity (PE), tracking the careers and deals of PE professionals who have deployed 97% of capital for U.S. PE firms over the past three decades. I find that about 40% of a PE partner’s investment performance can be explained by which PE firm they worked at as a junior associate. Moreover, 60% of this early-career effect is accounted for by the identity of their primary mentor. Comparing deals led by former associates from the same firm or the same mentor provides evidence that these effects are driven by distinct approaches to capital structure and portfolio company management learned early in their careers. Instrumental variable estimates at the PE firm level document additional short-run effects of associate experiences: the loss of junior associates decreases deal-making activity. Overall, my results show that fund managers’ long-term investing success is significantly related to where their investment careers begin.
Blake Jackson, University of Florida