Discussion of Hege, Palomino

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Discussion ofHege, Palomino SchwienbacherAchar
ya Kehoe

• Nicolas Véron
• 2nd ECB-CFS Network Symposium
• Frankfurt, 14 February 2008

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Hege, Palomino SchwienbacherVenture Capital
Performance The Disparity between Europe and
the US

• Measurement of gross return over successive
  rounds of VC investment
• 146 company stories in Europe (half in UK), 233
  in US
• Results
• Europe underperforms the US
• More mature VC landscape in the US
  (specialisation, syndication, interaction with
  corporate investors)
• US VCs in Europe dont perform better than
  European VCs
• Legal origin, tax environments make little
  difference
• No clear picture on exit conditions

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Challenges

• Limited time period observed, market upheavals
• Limited size of samples overall
• Different European sample for exits
• Excess return definition
• Valuation at first round
• Observations often inconclusive

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Questions

• Differentials between industries
• Differentials between European countries
• Differentials among VC actors
• Differences Europe / US?
• Typology of good / poor performers?
• Other factors that affect post-entry growth
• Size of US market
• Labour rigidity
• Culture
• Role of innovation ecosystems

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Acharya and KehoeCorporate Governance Value
Creation Evidence from Private Equity

• Work in progress
• 59 large UK private equity transactions (aim is
  80)
• By 11 large and mature PE houses
• Decomposition of return into leverage, sector
  component, and alpha
• Correlated with operational improvements
• Measures of financial performance
• Corporate governance changes

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A rosy view of Private Equity

• Not just asset-strippers or tax arbitrageurs
• Effect on employment at beginning
• Performance growth correlated with alpha
• Efficient use of capital
• Organic deals have highest alpha
• Active corporate governance

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Investment Trends

• from Lerner al, The Global Economic Impact
  of Private Equity Report 2008, World Economic
  Forum

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Questions

• How specific is the UK?
• Including on corporate governance
• Market downturn?

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Thank You For Your Attention

• 32 473 815 372 / n.veron_at_bruegel.org
• www.bruegel.org