IESE Research Papers,
IESE Business School

Abstract: We examine the determinants of institutional investors when deciding on international capital allocation in Venture Capital and Private Equity Limited Partnerships; this is done through a questionnaire addressed to (potential) Limited Partners world-wide. The respondents provide information about their criteria for international asset allocation. The protection of property rights is the dominant concern, followed by the need to find local quality General Partners, and the quality of management and skills of local entrepreneurs. Furthermore, the expected deal flow plays an important role in the allocation process, while investors fear bribery and corruption. Public funding and subsidies do not play a role at all in the international allocation process. Hence, private money does not follow public money. The IPO activity and the size of local public equity markets are not as relevant as proposed by other researchers. Our results can support policymakers to increase the attractiveness of their countries for institutional investors and, thus, to receive more risk capital for innovation, entrepreneurship, employment and growth.

Keywords: Venture Capital; Private Equity; International Asset Allocation; Institutional Investors

JEL-codes: G11; G23; G24

31 pages, January 11, 2008

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