Internationalization and Private Equity Partnerships: Legal Origin Heterogeneity and Fund Performance

This study examines the impact of heterogeneity in legal origin between partners on the performance of Private Equity (PE) funds. Using a dataset of 3658 buyouts from 2000 to 2016, we show that internationalized PE partnerships, where Limited Partners (LPs) and General Partners (GPs) are from different legal systems, underperform compared to those within a single legal regime. We attribute this effect to challenges in contract enforcement and monitoring. Interestingly, while GP experience does not mitigate this negative effect, LP experience seems to intensify it, possibly due to overconfidence. We further find that funds with civil law GPs and common law LPs perform worse in terms of IRRs and MOIC, whereas the opposite combination only shows a decrease in MOIC. We explore potential explanations for these patterns, including the role of institutional differences, and discuss their implications for theories of PE internationalization and avenues for future research.