Managing diversified portfolios

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Research on the relationship between diversification and performance has a long history in the strategy and finance fields, particularly for public corporations. However, there is limited research on this topic concerning private equity portfolios. Understanding how private equity portfolio diversification affects performance, how private equity firms manage their portfolios, and what public companies can learn from these firms is crucial. Daniel Klier’s research addresses these questions through a two-tier research design. First, he compares the diversification-performance link between public corporations and private equity firms. His innovative approach involves generating a private equity sample from databases like Preqin and Dealogic, creating a diversification measure from transaction data, and developing comparable performance measures for both private equity and traditional multi-business firms. The second exploratory step involves examining the management models of private equity firms. The study includes a unique sample of 20 US and Europe-based private equity firms, with in-depth interviews conducted with top decision-makers. This exploratory study identifies three clusters of management models used by private equity firms and their relationship to performance.