0 Preliminary ACTIVE INVESTORS AND PERFORMANCE IN PRIVATE EQUITY FUNDS

I investigate whether large, active limited partners exert influence over the portfolio decisions made by private equity (PE) fund managers to the detriment, or benefit, of smaller investors in the pool. I document that 3.6 percent of portfolio companies have prior linkages to active investors in the funds. PE funds with these deal linkages perform 2.3 percentage points worse in IRR, robust to benchmark and placebo tests. I use portfolio company exit distributions to understand the mechanism and causality. On the flip side, I document that 2.2 percent of portfolio companies are bought by acquirers linked to the active investor. These exit linkages bring a positive excess IRR of 5.8 percentage points, presumably reflecting a bailing out of failed investments or a propping up of fund performance.