In Private Equity, Bigger Not Always Better, Study Says
Bigger is better, except when it's not-as evidenced by new research showing that large private equity firms underperform their smaller counterparts.

The report, "Giants at the Gate: On the Cross-Section of Private Equity Investment Returns," was conducted by Florencio Lopez-de-Silanes of EDHEC Business School, an institution with campuses in Europe and Asia, with co-authors Ludovic Phalippou and Oliver Gottschalg. The researchers examined PE returns using a database of 7,500 investments worldwide over a period of 40 years.

"People are surprised by the diseconomies of scale," commented Lopez-de-Silanes, referring to the report's determination that the scale of private equity firms is a significant driver of returns. "A very important point that has also been the focus of our attention is that our data allows us to understand better the mechanisms through which scale affects returns," he said, noting that the structure of PE firms matters a great deal. "Independent and less hierarchical PE firms, as well as those whose managers have more similar backgrounds, show significantly lower diseconomies of scale," he said.

Most PE investments around the world are modest in terms of equity, with the median equity investment being about $10 million, according to the research. Media hoopla over multi-billion-dollar deals notwithstanding, only 10% of the investments in the report sample involved more than $100 million of equity.

The report revealed that as PE firms scale up, larger communication costs outweigh the benefits of higher knowledge utilization rates. The authors also found substantial underperformance of investments in emerging countries, where poorer performance is exhibited across all measures, with the exception of bankruptcy rate.

For large firms and small, the notion that private equity focuses heavily on cash-rich industries is not borne out by the research data, according to the study.

More information can be found at the EDHEC Risk Institute Web site at

In other news ...

Private equity investors' total exposure to funds-of-funds will fall over the next three years, according to New York-based Coller Capital's latest Global Private Equity Barometer. High costs are cited by 50% of investors planning a reduced funds-of-funds exposure; disappointing returns by 36%. The number of investors refusing to commit to new funds from their current GPs has also reached a record high, according to the report, which noted that 91% of European investors have increased their "re-up" refusals compared with just 63% two years ago, while the proportion of Asia-Pacific LPs refusing re-ups has also grown (from 52% two years ago to 70% now). This doesn't mean, however, that LPs are becoming less adventurous-81% of LPs reportedly plan to add new GP relationships over the next two to three years. For more information go to

Hong Kong is ranked the world's freest economy (from a field of 179) for the 17th consecutive year in the 2011 Index of Economic Freedom, jointly published by The Heritage Foundation and The Wall Street Journal. According to the index, Hong Kong scored 89.7, well above the world average of 59.7. Among the ten economic freedom factors assessed, Hong Kong ranks first in financial freedom and trade freedom, second in investment freedom and property rights, and third in business freedom and monetary freedom. For further information go to

Hennessey Group LLC
reported that hedge funds experienced their best monthly gain of the year in December, advancing 3.04%, which helped hedge funds gain 10.05% for 2010. "The real value of hedge funds is in risk-adjusted returns and downside protection," Hennessey's co-founder Charles Gradante said. "Since the beginning of the credit crisis in September 2008, the Hennessee Hedge Fund Index was up 16%, while the S&P 500 was down 2%. Hedge funds have also generated these returns with half the volatility." The firm's monthly hedge fund review can be found at

The Ewing Marion Kauffman Foundation
and the Arthur & Carlyse Ciocca Charitable Foundation have formed a partnership designed to help entrepreneurs create  high-growth, multi-billion dollar firms. To launch the initiative, the Ciocca Foundation-founded by Arthur Ciocca, chairman and owner of The Wine Group Inc., and his wife, Carlyse-has made a $600,000 gift, earmarked for the Kauffman Foundation's Kauffman Labs for Enterprise Creation initiative, which recruits and trains aspiring entrepreneurs. For more information go to

BNY Mellon Wealth Management now offers its private banking clients Cash Management Access Accounts that allow them to handle their banking and self-directed investment capabilities in one "streamlined solution"-via a single Web-based access point-according to the company. CMAA is a brokerage account that holds investment assets and automatically directs any uninvested cash balances to a so-called "sweep account." For more information go to

Franchise businesses are poised for stronger growth in 2011, according to a report prepared by PricewaterhouseCoopers LLP for the International Franchise Association Educational Foundation. The report estimates that the number of franchise establishments will grow 2.5% in 2011, from an estimated 765,723 to 784,802-an increase of 19,079 new establishments. Economic output is projected to grow 4.7% or $33.3 billion from an estimated $706.6 billion to $739.9 billion. For more information go to

French bank BNP Paribas is bolstering its Asia wealth management business with the addition of a new ultra-high-net-worth unit and a reorganized structure to help capture rapidly growing wealth in emerging markets, according to Reuters. The dedicated unit for UHNWIs intends to serve clients with at least $30 million in investable assets. "These Asian markets are not debt-saddled nations. They are in a very strong wealth-creation phase," said Catherine Tillotson, a partner at wealth management consultancy Scorpio Partnership of London.

More than 50% of hedge fund CFOs surveyed in a recent poll conducted by SEI's investment manager services division said that addressing new regulatory requirements and meeting evolving investor expectations are the biggest challenges they face over the next 12 to 18 months. More than a third saw economic uncertainty as their biggest challenge. The poll also revealed an ongoing shift in investor expectations: 40% of CFOs reported that providing satisfactory risk data is the biggest challenge, outside of performance, in satisfying investors. For more information go to visit


The Spark & Hustle National Tour, a new series of small business conferences for entrepreneurs created by Tory Johnson, the CEO of Women For Hire, launches next month in eight cities across the U.S. They include: Los Angeles (Feb. 3-5); Tulsa (Feb. 10-12); New York (March 10-12); Dallas (March 24-26); Chicago (April 7-9); Boston (May 12-14); Orlando (May 19-21); and Atlanta (July 21-23). For more information go to

The role community investing is playing in the nation's economic recovery, along with community investing options that align social impact with financial return, will be explored at the Community Investing Conference in Fort Lauderdale, Fla., on February 8. The event is sponsored by the Social Investment Forum in with Ft. Lauderdale-based Community Capital Management. For more information go to

Family Office Exchange will be hosting a Web conference, "Making the Grade: Family Office Strategic Assessments," on February 9. For information contact Jennifer Muntz at 312-327-1211 or by e-mail at [email protected]. The FOX Web site is

Roth Capital Partners, based in Newport Beach, Calif., will be holding its 23rd Annual OC Growth Stock Conference March 13 - 16 at The Ritz Carlton, in Dana Point, Calif.. Executives from over 400 growth companies (including 100 from China) will be in attendance. For more information, e-mail [email protected] or go to

The Dow Jones 2011 Global Compliance Symposium, scheduled for March 31 and April 1 at the Park Hyatt in Washington D.C., will provide compliance officers, general counsels, ethics officials and outside legal professionals insight on how to limit business risk against increasing threats and more complicated regulation. For more information go to

The Shorex Wealth Management Forum Singapore 2011, created to address the Asian market's growing need for private banking, asset management and international tax planning solutions and services, will be held April 12 and 13 at the Suntec Singapore International Convention & Exhibition Centre. The event focuses on professional advisors to high-net-worth individuals and institutional investors, but also welcomes ultra-net-worth qualified investors invited by Shorex private banking partners. For further information go to

On The Move

Bruce A. Lev, CPA, has joined Nussbaum Yates Berg Klein & Wolpow LLP as a tax partner. The firm, based in Melville, N.Y., serves high-net-worth individuals, families and home offices.

Jim Embersit has joined Ernst & Young LLP's financial services office as an executive director within its advisory practice. Embersit spent 20 years at the Federal Reserve, most recently as the deputy associate director for Credit, Market, Liquidity and Operational Risk Policy in the Division of Banking Supervision and Regulation at the Board of Governors of the Federal Reserve System.

Greg Fleming, a former Merrill Lynch president who headed Morgan Stanley's asset management business, will also become president of global wealth management, succeeding Charles Johnston, a former Citigroup executive who served as president of Morgan Stanley Smith Barney since Citigroup Inc. and Morgan Stanley joined forces in June 2009.

LDC, a regional mid-market private equity house and private equity arm of Lloyds Banking Group, has appointed Daniel Sasaki as managing director of the company's LDC London investment team. Sasaki, taking over from Peter Brooks, was previously a director of the firm and joined LDC London in 2008.

Canaccord Financial Inc., a financial services firm with a focus on wealth management and global capital markets, has completed its acquisition of The Balloch Group, a boutique investment bank in China. The business will operate as Canaccord Genuity Asia. Howard Balloch will serve as chairman. Canaccord Financial Inc. has 41 offices worldwide, including 30 wealth management offices located across Canada.

-Cort Smith