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Why are buyouts levered?: the financial structure of private equity funds

Axelson, Ulf, Strömberg, Per and Weisbach, Michael S. (2009) Why are buyouts levered?: the financial structure of private equity funds. Journal of Finance, 64 (4). pp. 1549-1582. ISSN 0022-1082

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Identification Number: 10.1111/j.1540-6261.2009.01473.x


Private equity funds are important to the economy, yet there is little analysis explaining their financial structure. In our model the financial structure minimizes agency conflicts between fund managers and investors. Relative to financing each deal separately, raising a fund where the manager receives a fraction of aggregate excess returns reduces incentives to make bad investments. Efficiency is further improved by requiring funds to also use deal-by-deal debt financing, which becomes unavailable in states where internal discipline fails. Private equity investment becomes highly sensitive to aggregate credit conditions and investments in bad states outperform investments in good states.

Item Type: Article
Official URL:
Additional Information: © 2009 American Finance Association
Divisions: Finance
Subjects: H Social Sciences > HG Finance
Date Deposited: 04 Feb 2011 15:56
Last Modified: 20 Aug 2021 01:43

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