An Investigation into the Educational Background of Private Equity Lead Partners: What is the Impact on Performance?

Abstract

This study investigates whether the educational background among lead partner teams (LPTs) of private equity (PE) funds affect buyout performance. In particular, I examine four potential channels throughout which educational characteristics may impact buyout performance: (i) levels of education, (ii) specialized certifications, (iii) combination of levels of education and specialized certifications, and (iv) educational profile. By using ordinary least squares (OLS) models and a sample of 263 worldwide buyouts and 597 involved PE lead partners during 1997-2015, I find no significant influence of levels of education and/or specialized certifications on buyout performance. This applies to either individual variables or their combined effects. The results suggest that other factors such as work experience, practical skills, cognitive intelligence and motivation may also influence performance, making it difficult to isolate the impact of education alone. Furthermore, this study reveals that compared to LPTs with a non-business background, the teams with a broader educational profile (defined as a background in business combined with a non-business background) tend to outperform. However, the question whether a broader educational profile among LPTs can positively affect buyout performance still remains open. In case more empirical evidence is found in this direction, PE firms could use this knowledge to guarantee that at least one PE partner in the LPT has a business background and one has a nonbusiness background (this can be the same person) in order to enhance buyout performance. This would be of great relevance in a performance-driven industry such as PE.