Local overweighting and underperformance: Evidence from limited partner private equity investments

Yael V. Hochberg*, Joshua D. Rauh

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

44 Scopus citations


Institutional investors exhibit substantial home-state bias in private equity. This effect is particularly pronounced for public pension funds, where overweighting amounts to 9.8% of aggregate private-equity investments and 16.5% for the average limited partner. Public pension funds' in-state investments achieve performance that is lower by two to four percentage points than both their own similar out-of-state investments and similar investments in their state by out-of-state investors. Overweighting in home-state investments by public pension funds is greater in venture capital and real estate than in buyout funds. States with political climates characterized by more self-dealing invest a larger share of their portfolio in local investments, although a given local investment performs only as poorly in these states as in other states. Relative to the performance of the rest of the private equity universe, overweighting and underperformance in local investments reduce public pension fund resources by $1.2 billion per year.

Original languageEnglish (US)
Pages (from-to)403-451
Number of pages49
JournalReview of Financial Studies
Issue number2
StatePublished - Feb 1 2013

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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