How do spanish private equity managers signal their quality?

Resumen

The aim of this paper is to analyse the relationship between investors and private equity managers in maturing markets. Due to the lack of information regarding track record in these markets, private equity managers should signal their quality by other means in order to raise new funds from investors. The Agency and Signalling Theories is set as theoretical framework to infer the relevant determinants in this context. Two groups of variables that might signal quality are proposed, namely, variables related to the investment/divestment behaviour and to organisational characteristics of the operator. The empirical analysis is based on the activity of almost all private equity investors operating in Spain during the period 1991-2001. Results show that the lagged volume of investments acts as a main indicator of the ability to manage larger amounts of capital. The exogenous characteristics of highest importance are the belonging to the national private equity association and the size of the funds under management.