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• Article | Journal of Economic Perspectives | Spring 2013

  The Investment Strategies of Sovereign Wealth Funds

  Shai Bernstein, Josh Lerner and Antoinette Schoar

  This paper examines the direct private equity investment strategies across sovereign wealth funds (SWFs) and their relationship to the funds' organizational structures. SWFs seem to engage in a form of trend chasing, since they are more likely to invest at home when domestic equity prices are higher and invest abroad when foreign prices are higher. Funds see the industry P/E ratios of their home investments drop in the year after the investment, while they have a positive change in the year after their investments abroad. SWFs where politicians are involved have a much greater likelihood of investing at home than those where external managers are involved. At the same time, SWFs with external managers tend to invest in lower P/E industries, which see an increase in the P/E ratios in the year after the investment. By way of contrast, funds with politicians involved invest in higher P/E industries, which have a negative valuation change in the year after the investment.

  Citation:

  Bernstein, Shai, Josh Lerner, and Antoinette Schoar. "The Investment Strategies of Sovereign Wealth Funds." Journal of Economic Perspectives 27, no. 2 (Spring 2013): 219–238.

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• Case | HBS Case Collection | 2013

  Bay Partners (A)

  Josh Lerner and Lauren Barley

  In April 2010, Salil Deshpande has recently resigned from Palo Alto, California-based Bay Partners (Bay) where he had been a general partner. Although Deshpande had built a successful track record at the venture firm, he resigned with two other Bay general partners as disagreement about internal economics and governance continued among the Bay's six-member management team. This triggered the "key man" clause in the limited partnership agreement of Bay's most recent fund, Bay XI. The case considers the options that Deshpande and the Bay XI limited partners face as the firm and fund's futures are thrown into doubt.

  Citation:

  Lerner, Josh, and Lauren Barley. "Bay Partners (A)." Harvard Business School Case 213-102, March 2013.

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• Supplement | HBS Case Collection | 2013

  Bay Partners (B)

  Josh Lerner and Lauren Barley

  In December 2012, Salil Deshpande has rejoined Bay Partners (Bay), which had been restructured following the 2010 departures of three of its general partners. Life was good for Deshpande: his firm had distributed roughly $1 billion to its limited partners (LPs) over the past 18 months as four of its portfolio companies filed for IPOs and four more were acquired; several of Bay's exits through acquisitions were from Deshpande's seed investments; Bay's LPs were ecstatic with Bay's turnaround; and the office atmosphere was upbeat and fun. Now was a logical time to begin fundraising for the next fund, Bay XII. Although several Bay XI LPs were encouraging Deshpande to raise a new fund under the Bay Partners' banner, Deshpande wondered if that was realistic, and even desirable, given the firm's tumultuous history over the last seven years. Other Bay XI LPs and some other potential investors were urging Deshpande to raise a smaller, solo fund. Recruiters and venture firms also regularly contacted Deshpande "to see where his head was at."

  Citation:

  Lerner, Josh, and Lauren Barley. "Bay Partners (B)." Harvard Business School Supplement 213-103, March 2013.

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