Chair ofEntrepreneurial Finance and Corporate Finance
While corporate finance focuses on existing businesses and their challenges in generating returns for investors and increasing shareholder value, entrepreneurial finance centres around the study of value and resource allocation in new businesses. It specifically addresses the owner's struggle to secure the necessary funding to determine if the business can achieve financial sustainability.
At the Chair of Entrepreneurial Finance and Corporate Finance, we merge both fields of finance in our research and teaching endeavours. In our research, we particularly aim to comprehend the behaviour, performance, and modelling of venture capital, private equity, and other alternative assets. In our teaching, we provide courses on both entrepreneurial finance and corporate finance. Our objective, both in teaching and research, is to bridge the gap between theory and practice, enabling us to make meaningful contributions to the academic and business communities simultaneously.
- Prof. Dr. Axel Buchner
We offer the following courses:
Sustainability Entrepreneurship and Innovation
- Advanced Entrepreneurial Finance
Specialised Master Programmes
We conduct both empirical and theoretical research in the areas of entrepreneurial finance, venture capital, private equity, and corporate finance. Our research philosophy is that empirical research should be guided by rigorous economic theory, and theoretical research should be inspired by and help to explain empirical facts.
The research of the chair has been published in leading academic journals, including, among others, Management Science, the Journal of International Business Studies (JIBS)), the Journal of Business Venturing, the Journal of Banking and Finance, and Journal of Corporate Finance.
What is the risk and return of private equity investments?
Estimating the risk and return characteristics of private equity investments presents inherent difficulties due to the illiquid nature of this asset class. In private equity investments, one can typically only observe a series of multiple cash flows without any intermediate market valuations. As a result, it becomes impossible to construct a time series of returns, which hinders the use of standard econometric methods to estimate risk loadings and abnormal returns of these investments. The primary objective of this research stream is to develop performance measurement techniques that enable us to infer the alpha and beta of the private equity asset class. By doing so, we aim to overcome the challenges posed by the lack of conventional return data and facilitate a better understanding of the risk and return dynamics in private equity investments. This endeavour is crucial in assessing the true performance and value that private equity investments bring to investors' portfolios.
How can investors include private equity in a multi-asset class portfolio?
Alternative assets like private equity exhibit distinct features that differ significantly from existing portfolio optimisation models. In traditional portfolio optimisation, investors can dynamically adjust the weights of all assets in their portfolio, either at predetermined intervals or when specific trading events occur, using deterministic or stochastic approaches. However, private equity fund investors face limitations in exerting direct control over their portfolio weights allocated to private equity over time. Unlike other assets, they cannot directly manipulate the weightings of private equity holdings. Instead, their influence lies in determining the size of their new commitments to the asset class, which indirectly impacts future portfolio weights but with some time lag. The objective of this research stream is to develop a comprehensive portfolio model that incorporates private equity fund investments. This model should take into account the unique constraints and characteristics of private equity, allowing investors to make informed decisions about their overall portfolio allocations, considering the indirect influence of new commitments on future portfolio weights. By addressing these complexities, the research aims to provide a more accurate and practical framework for portfolio management that includes private equity investments.
What drives private-equity performance persistence?
Since Kaplan and Schoar's influential article in 2005, which explored fund performance persistence in the US private equity (PE) industry, several subsequent studies have further investigated this issue. These studies have examined both the performance persistence at the fund level and the level of individual portfolio company investments. The question of whether there is performance persistence is of great importance as it suggests that certain fund managers consistently outperform their peers over an extended period. Performance persistence implies that past performance can serve as a reliable predictor of future performance. In this research stream, the primary objective is to identify the factors that drive performance persistence in private equity. Understanding these drivers can contribute to making informed investment decisions and assessing the potential for sustained outperformance in private equity funds. For buyout investments, our findings indicate that performance and persistence are significantly influenced by the 'de-leveraging' component. This refers to the portfolio companies' ability to manage high debt burdens at the time of investment, such as in leverage buyouts, and subsequently reduce leverage before private equity backers exit their investments.
Private Equity debt funds: who wins and who loses?
Private equity (PE) firms commonly acquire companies by using a substantial amount of debt, a strategy well-documented in previous research. This use of leverage is essential as it allows PE firms to engage in larger deals and reduce their own equity capital investment while enhancing their potential returns. In the pursuit of leverage, some PE firms have established their own debt funds, known as PE-affiliated funds. These funds are frequently used to finance deals conducted by the equity funds of the same PE firm, referred to as related deals. This strategy may contribute to explaining the superior returns of large PE firms. However, it can also raise concerns regarding potential conflicts of interest, as the same PE firm is simultaneously involved on the equity and debt sides of the deals, with fund participants possibly having contradicting objectives. As a result, market participants have been increasingly advocating for greater transparency in related deals. In this research stream, we present the first comprehensive analysis of related deals, examining their performance, gain distribution, and structure in comparison to unrelated deals. The aim is to gain insights into the existence of related deals and shed light on potential explanations for their prevalence. This analysis may help address concerns related to conflicts of interest and offer valuable information for investors and market participants.